Intel Corporation’s Bay Trail Boosts PC Share

When Intel (NASDAQ: INTC  ) announced that its tablet-oriented processor – known as Bay Trail-T – would require a contra-revenue bill of materials offset in order to be competitive, many investors were disappointed, but recognized that this was the right thing for Intel to do given the cards it was dealt. However, as I wrote back in May, the core Bay Trail technology was still fantastic for Intel's profitability – just not in ultra-mobile.

Indeed, with the lower cost structure of Bay Trail for notebooks (Bay Trail-M) and for desktops/all-in-ones (Bay Trail-D), the company was able to successfully mount an attack on rival Advanced Micro Devices' (NYSE: AMD  ) budget PC chip stronghold. On the most recent conference call, CEO Brian Krzanich gave us the first hint as to just how big the impact of Bay Trail in PCs really was.

20% of Intel's notebook mix, 60% of Pentium/Celeron mix
Mr. Krzanich gave us the following details about the mix of PC-oriented Bay Trail products during the second quarter:

  • Bay Trail-M made up 20% of Intel's entire notebook shipments
  • Bay Trail-D made up 60% of all of Intel's Pentium/Celeron (these are the budget brands)

Now, here's why this is important. Bay Trail-M is much cheaper to build than a traditional Core-based Pentium/Celeron. How do we know this? Well, according to AnandTech the smallest configuration of Intel's latest Haswell architecture (this is branded Core, and there are also Pentium/Celeron processors based on this design) comes in at 130 millimeters squared in terms of die size.

Additionally, this solution isn't a single-die solution – in order for Haswell to function, it needs a separate companion chip known as a PCH, which is another – by my estimates – 60 millimeter square chip built on Intel's older 32-nanometer process (Haswell and Bay Trail are built on 22-nanometer FinFET).

So, Intel goes from needing to sell about 190 square millimeters of silicon into a system that sells for $200-$300 to being able to sell a chip with a die size of approximately 102 millimeters squared into that same market. Since Intel can sell such a chip for a much lower price for the same gross margin percentage (or the same price for a higher gross margin percentage) as the bigger solution at a higher price, this is a powerful weapon to drive incremental share.

What does this mean for Advanced Micro Devices?
Intel's push with Bay Trail-M/D is potentially a negative for Advanced Micro Devices, which has traditionally enjoyed an effective monopoly on the low-end of the PC market (due to Intel's lack of price/performance offerings there). While AMD's products here do offer competitive performance (similar CPU performance, significantly higher graphics performance), the downside is that AMD's solutions are more power hungry than the corresponding Intel Bay Trail-M/D parts.

Intel reported gaining share in the PC market on its call against AMD (and Intel's 9% increase in notebook volumes and 8% in desktop volumes in a flat-to-down total market reinforces this), so we will see in AMD's July 17 earnings report the magnitude of this share loss.

Though the secular tailwinds in the broader PC market could offset this for AMD, the comments that Intel made on the call about consumer markets still remaining weak (AMD has significant exposure to consumer PCs) could negate that. Of course, as AMD continues to diversify its product lineup into embedded/semi-custom, this will matter less in the long-run. 

Foolish bottom line
Intel's investment in Atom is certainly paying dividends for its PC division, particularly as these Atom-derived PC products allow the company to more effectively compete for share in the low-end of the PC market. Though Bay Trail-M/D were reasonably competitive in terms of performance, the next generation of products in this family – known as Braswell – could be much more so. We'll know soon enough as Intel plans to reveal the technical details of these products at its fall developer forum.

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  • Report this Comment On July 16, 2014, at 3:28 PM, ta152h wrote:

    First 20% of Intel's notebook market is good? That means 80% is going to Haswell. Desktop and server is much higher. That's good?

    Second, you're overlooking a few things when you compare costs. How many of these Celerons and Pentiums are salvages, meaning parts that can't be used as i3s? Also, keep in mind a 130nm part that has parts shut off is cheaper than a 130nm part that doesn't, simply because the validation for it is easier, and more parts pass.

    More importantly, Intel doesn't pay the same for a part made on a deprecated process. It's all paid for in terms of development costs, and they use these older technologies to make parts inexpensively that don't need modern processes.

    It's not nearly as cut and try as you make it.

    But, worse than this, what do you think happens when someone takes home a Pentium based Bay Trail? They hate it, because it's inferior technology. It's slow. Pentium based Haswell? It's extremely fast. It's a bad strategy for Intel to hold, because it's going to hurt the brand. That takes time, but it happens with every purchase.

    Bay Trail will sell as long as Intel pays people to use it, or people don't know they're getting it (like Celerons and Pentiums right now). It's also good in lower power, but that's not important against Puma in laptops. Both use so little power that they it's almost irrelevant. In phones and tablets, it matters much more though.

  • Report this Comment On July 17, 2014, at 9:31 AM, TEBuddy wrote:

    So what point have you made? What does 20% of shipments mean? You haven't provided any information about that to say that gained some share. Was pentium/celeron only 15% of past shipments? The only point you have made is that their cost may have gone down, maybe. And who knows what Intel is paying people to use their Bay Trail M for laptops.

    And Intel still lacks performance from Bay Trail M compared to AMD Beema processors, so while Intel may be able to sell cheaper they still are inferior.

  • Report this Comment On July 17, 2014, at 9:33 AM, TEBuddy wrote:

    What if I told you AMD's shipments increased by 20%, simply because of new products and people emptying inventory in the past? How does that indicate if their market share increased?

  • Report this Comment On July 17, 2014, at 4:48 PM, PDM wrote:

    TE - AMD shipments did not increase by 20%.

    Intel gave good evidence that they increased their share in the PC segment YoY. AMD's results just now appear to confirm that Intel took share from AMD (AMD CPU segment was 669M, down a little over 20% YoY (that 20% number you brought up was kind of prophetic in a way).

    The real point is that Intel has a good cost structure that is helping to drive their product into the lower cost PC segment. AMD simply does not have a good answer to this threat at this time.

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