Here's Why Intel's Bay Trail Was Still a Financial Success

Whenever Intel (NASDAQ: INTC  ) investors think about Bay Trail, the focus is probably first and foremost on the Bay Trail-T for tablet parts. These are the ones with the little "contra-revenue" problem, which is necessary to support a fairly rich bill of materials to effectively compete in extremely low-cost tablets. However, while Bay Trail-T may have issues being profitably squeezed into a $149 tablet, Bay Trail-M and Bay Trail-D -- Bay Trail modified for PC usage -- are a completely different story.

Bay Trail-M and Bay Trail-D enable dirt-cheap PCs
Over the last several years, Intel had aggressively pursued the mid-range and high end of the PC market, attempting to drive incremental content share gains (integrated graphics was a big driver of this, for example) to drive a richer mix. This worked for a couple of years, but with the advent of tablets, the low end of the PC market began to be significantly cannibalized as tablets were sleek, fan-less, and offered superb battery life -- in sharp contrast to many low-cost PCs. 

Acer's low-cost, fan-less systems could help slow the decline in PCs. Source: Acer.

However, Intel's low-power/mobile-focused R&D is paying off handsomely for its PC division in developing cost- and power-sensitive parts for the lower ends of the notebook and desktop markets -- a market traditionally dominated by competitor Advanced Micro Devices (NYSE: AMD  ) . As you'll see in just a moment, these parts are enabling systems that never would have been possible (at the price points in which they sit) with crippled versions of Intel's Ultrabook-oriented Core processors.

Bay Trail-M -- dirt-cheap, fan-less Windows 8.1 notebooks
At a recent event, one of the world's top PC vendors by market share, Acer, held an event at which it announced a bunch of new PCs. The interesting thing about the notebooks that it introduced was that these weren't higher-end Ultrabooks, but instead very low-cost, fan-less models based on the equally low-cost Bay Trail-M processors.

The lowest-end model is the Aspire E11, which sports a 1366x768 non-touch display, a 320 GB hard disk drive, and Bay Trail-M. This one is priced at only $299. For an additional $70 at the $369 price point, customers can get a touchscreen. These two models should be great for customers on a budget and it will be systems like these that stand any chance of winning back wallet share from tablets.

Bay Trail-D does the same for desktops
As a result of Bay Trail-M, Intel's motherboard partners such as ASRock can offer motherboards complete with a soldered-down Bay Trail-M CPU for $70:

Bay Trail-D on sale as part of an ASRock board. Source: Newegg.com.

If we assume Newegg is able to mark up its products by about 20% and that ASRock is able to get about 20% gross margins on this product (roughly in line with ASRock's corporate gross margin profile), this implies a cost of goods sold for the platform of about $49. If we assume that the rest of the board cost about $20 to build, then Intel likely recognizes about $29 in revenue per Bay Trail-D. These are really inexpensive chips and this chip and its successors will likely do a great job of driving incremental PC volumes.

This is a financial success
Given the maturity of the 22-nanometer process, these chips likely cost very little to make. Assuming a die size of about 110 square millimeters, yield rate of about 90%, and a $3200 wafer cost, this implies about 487 good dies per wafer or an average cost of $6.50. Add in $1.50 for packaging and test, and we've got a cost of about $8. This implies gross margins of about 72%. Of course, these are estimates but they are realistic given the wafer cost estimates Handel Jones, a well-respected semiconductor business analyst, gave in a recent paper.

Foolish bottom line
While Bay Trail-T didn't quite have the right cost structure for tablets, the desktop/notebook variants of Bay Trail are extremely competitive with products from rival AMD for the first time in ages at these price points. The low-power nature of these products, coupled with the low cost, enables some pretty attractive, potentially high-volume PCs. Intel's Bay Trail was ultimately a financial and strategic success and a good stepping stone for a better competitive position across the computer continuum.

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  • Report this Comment On May 05, 2014, at 11:30 PM, raghu78 wrote:

    Ashraf

    AMD is having very competitive products against Baytrail-T / Baytrail-M / Baytrail-D. Mullins / Beema and Athlon AM1 are beating Intel's Baytrail products across the board. Read the latest reviews to get a good idea.

    So we can expect AMD to take back share. Kaveri will do well against core i3 and core i5 (dual core/ 4 threads). Intel will still rule the high end gaming notebooks with their i7 cpus. But everywhere else AMD is going to provide strong competition.

    http://tieba.baidu.com/photo/p?kw=amd&flux=1&tid=302...

    AMD's FX-7600P and FX-7500 have impressive specs for 35w/19w.

    btw AMD's Jim Keller announced he and his team are working on a clean sheet new high end x86 core. So much for your prophecy that AMD will quit the high end server and enthusiast desktop markets. sorry but tough luck. Jim Keller said he came back to AMD to have a big swing. Want to know against who. obviously Intel. The designer of Athlon 64 and Apple's Cyclone core is going to give AMD the tools to fight at the high end server and desktop markets.

    http://www.anandtech.com/show/7991/amd-is-also-working-on-a-...

    "Jim Keller joined Mark Papermaster on stage at AMD's Core Innovation Update press conference and added a few more details to AMD's K12 announcement. Keller stressed AMD's expertise in building high frequency cores, as well as marrying the strengths of AMD's big cores with those of its low power cores. The resulting K12 core is a 64-bit ARM design, but Jim Keller also revealed that his team is working on a corresponding 64-bit x86 core."

    http://techreport.com/review/26418/amd-reveals-k12-new-arm-a...

    "AMD revealed that it is working on not one, but two brand-new, built-from-scratch CPU architectures. It has licensed the ARMv8 ISA and, in Dr. Su's words, "we are already well on our way to developing custom ARM cores." At the same time, AMD is building a brand-new, x86-compatible CPU core that will serve to replace Bulldozer and its lineage."

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