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.
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:
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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