Intel Corporation (INTC)’s 4th Quarter 2014 Earnings Conference Call Transcript

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Operator
The next question comes from Stacy Rasgon from Sanford C. Bernstein & Co.

Stacy Rasgon, Sanford C. Bernstein
Hi Guys. Thanks for taking my question. I think first I just want to – it sounds like the slightly weaker PC volume you saw in Q-4 is not changing your 2015 of the market at all – if the inventory burn that you saw in the channel was at the low end we saw ASPs come up, I guess, because you were losing some of that low end shipment – what does that suggest for your ASP trend next quarter, as potentially those, I guess, after you see those inventory trends going back the other way? What does that mean for pricing as we move into the next quarter? Does the low end start to come back for you?

Stacy Smith, Chief Financial Officer
I’ll take that. So first off, I’ll say the ASP good news that we saw in Q-4 really had three elements to it. One element was the fact that we saw some inventory burn on Bay Trail, so our mix with the notebooks was a little bit higher. Think of that in rough numbers, that’s about a third of it. About two-thirds of it is associated with server. We just had a very strong quarter in terms of server, and our server mix is starting to look better, starting to improve some, so that’s about two-thirds of it. In terms of the impact on Q-1, it’s not jumping out on the margin recon, so you should take from that that we’re expecting pretty benign ASP environment as we go into the year, and it also doesn’t pump out on the year recon, so it’s not a big driver of gross margin next year, based on what we can see today.

Stacy Rasgon, Sanford C. Bernstein
Got it. And for my follow-up, I want to ask a maybe more general question on 14 versus 22. So, for 14-nanometers, you’ve shown a lot of charts showing normalized cost per transistor dropping below trend. Obviously wafer cost is going up quite a bit, but your density seems to be increasing even faster, and that’s going down, but that’s a normalized basis. At the same time we have had yields that obviously have taken a bit longer to get into play, so we have factory ramps that seem to be hitting more than normal in the first half of the year. Would you say that the all-in costs of the lifetime of 14-nanometers actually is going to turn out to be lower than the all-in cost of 22?

Stacy Smith, Chief Financial Officer
Stacy, I would take you back to the graph I showed at the investor meeting, because I actually – a non-normalized cost that showed Broadwell relative to other products at the same stage of manufacturing. So, what that chart shows is that sure enough, in the first half of this year, so the early stage of the Broadwell ramp, because of some of the yield issues that we’ve talked about, it is higher. It’s on a non-normalized basis, it’s a higher cost, but by the time we get into the back half of the year on a non-normalized basis, Broadwell actually is less expensive than those other products at the same stage of their life.

Stacy Rasgon, Sanford C. Bernstein
So you think if I integrate that curve over the lifetime, the integral will be lower?

Brian Krzanich, Chief Executive Officer
Stacy, we’ll go ahead and answer that question, but I want to remind you we’re trying to take two questions per person please.

Stacy Rasgon, Sanford C. Bernstein
Sure, thank you.

Stacy Smith, Chief Financial Officer
So I haven’t done a volume-weighted ramping or volume-weighted cost comparison. I just looked at it in the curves that I showed you, so I guess a lot depends on how much volume happens after we get to that point of parity and improvement. But, I think that the cost per transistor and the fact that we are investing that in lower die sizes and more features – we think we’re getting super high performance and very cost effective product on 14-nanometer.

Stacy Rasgon, Sanford C. Bernstein
Thank you guys.

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