Critiquing Intel Corporation's Core X Product Segmentation

Microprocessor giant Intel (INTC +4.96%) recently announced its Core X family of processors targeted at the small but fast-growing high-end desktop personal-computer market. 

Intel's latest high-end desktop processor product stack consists of nine processors, ranging from a modest 4-four-core, four-thread Core i5 processor for $242 all the way to a beastly 18-core, 36-thread processor for $1,999.

Image source: Intel.

One way Intel tries to maximize the profitability of its personal-computer chip business is to aggressively segment its product lineups. In a nutshell, Intel aims to offer cost-optimized products at each price point and, through feature differentiation and smart marketing, wants to give potential buyers good reasons to buy as high up the product stack as their budgets reasonably allow. 

Let's take a moment, then, to analyze Intel's Core X processor segmentation strategy. 

The product stack

Here's a breakdown of the key features and specifications of Intel's Core X lineup: 

Data source: Intel.

At the bottom of the stack is the Core i5-7640X. This part has only four cores and four threads, though those cores run at reasonably high frequencies. For nearly $100 more, Intel offers the Core i7-7740X. This part has four physical cores and eight logical threads, so it should be better at multi-tasking and other scenarios that can use several processor cores than the 7640X. It also runs at a slightly higher frequency than the Core i5-7640X, and it has 2 MB of additional cache memory.

I think the price delta here is probably justified, though a four core, four thread processor for $242 is, in general, probably overpriced in this day and age. 

In going from the i7-7740K to the i7-7800X, Intel offers users two more processor cores and 12 more PCI Express lanes for just $50 more. There's a frequency sacrifice in going from the 7740X to the 7800X, but since these chips are designed to be overclocked anyway -- that is, run at higher speeds than what Intel rates them at out of the box -- the $50 premium for the 7800X seems well worth it from the perspective of an enthusiast who's also likely to overclock both chips. 

Image source: Intel.

The move from the 7800X to the 7820X yields a price increase of $210. For that extra cash, Intel offers two more processor cores, an increase in base frequency as well as Turbo Boost 2.0 frequency, the addition of Turbo Boost Max 3.0 capability, and an increase in L3 cache memory from 8.25 MB to 11 MB.  

Turbo Boost Max 3.0 is a feature that essentially allows the computer to detect the two highest-quality processor cores on the silicon die and, in workloads that only utilize two cores, runs those cores at the higher Turbo Boost Max 3.0 speed. 

For a user who isn't going to overclock, the increase in asking price from the 7800X to the 7820X is probably justified, since out-of-the-box the 7820X should perform quite a bit better than the 7800X will. When both parts are overclocked, I suspect that the value proposition of the 7820X will erode compared with the out-of-the-box value that it provides, though. 

Nevertheless, considering Intel charged north of $1,000 for its last eight-core processor, a reduction to $599 for this year's eight-core Core X processor, along with the commensurate reduction in PCI Express lanes from 40 to 28, should help adoption of the company's eight-core product this time around.

Then, moving up to the 7900X, Intel is charging $400 more for two more cores, 16 additional PCI Express lanes, and 2.75 MB of additional L3 cache memory. Clearly, there's a nonlinear price increase relative to performance, but that's usually the case the higher up one goes in a product stack. And this statement has broad applicability; it's not just in the world of chips.

I would also note that because of the nature of chip manufacturing, there's probably a non-linear increase in Intel's own manufacturing costs of the 7900X, which is a nearly fully enabled chip, relative to those of the 7820X, a significantly cut-down chip. 

Once again, it's worth noting that in moving from the eight-core to the 10-core part in the last generation, Intel charged nearly $700 extra. This time around, the eight-core part is substantially cheaper and the delta between the eight-core and 10-core in terms of pricing is smaller at $400. So, year over year, Intel has dramatically improved the value proposition of its 10 core parts. 

Moving on to the 12- to 18-core parts, I'm not going to spend too much time on them, but Intel is charging an extra $200 to go from 10 cores to 12 and an extra $300 for each additional pair of cores beyond that, up to a maximum of 18 cores for $1,999. These ultra-high-core count chips are clearly expensive and not aimed at value shoppers, but considering Intel charged $1,723 for a 10-core chip last year, $1,999 for an 18-core chip doesn't look that bad at all. 

Foolish takeaway

Intel has done a reasonable job of segmenting its Core X product family. The product stack this year is much more compelling across the board than last year's Broadwell-E processor in terms of core count offered at each price point, as well as the out-of-the-box frequencies of each chip. 

Moreover, it looks as if the company did a reasonable job of giving customers incentive to buy up the product stack. There's good reason to go from the 7640X to the 7740X, and there's very good reason to spend a little more to go from the 7740X to the 7800X. 

The move from the 7800X to the 7820X should also be appealing to those who can make use of the additional cores -- or simply for the peace of mind that an eight-core system is more "future proof" than a six-core one. 

The 10-core 7900X's positioning is also well chosen. Since there isn't a part between the $599 7820X and the $999 7900K, users who want or need more PCI Express lanes or additional CPU cores will be forced to pay for both features. 

In addition, the $999 price point for this year's 10-core part is far more reasonable than last year's $1,723 10-core part, which could help stimulate demand for 10-core Intel processor parts. 

Moving on to the 12- to 18-core parts, Intel has done a reasonable job segmenting those, too. It's a $200 jump to go from a 10-core part to the 12-core part, and then $300 extra for two more cores through the $1,999 18-core part. 

Ultra-high-end Intel desktop processors don't come cheap, but Intel has done a much better job setting reasonable prices this year than it did last year. It'll be interesting to see if the market rewards the company for these efforts or not.