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Intel's Processor Price List vs. Reality

By Ashraf Eassa - Dec 17, 2017 at 10:03AM

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Investors shouldn't use Intel's official price list to determine what it actually charges its major customers.

On chip giant Intel's (INTC 2.46%) investor relations page, the company provides a link to a price list for its wide range of processor offerings. These prices are what Intel refers to as "recommended customer price[s]." Some investors might refer to this processor price list to get a sense of what the company charges its major customers -- that is, large personal computer vendors and large data center operators -- for its chips. However, investors need to keep in mind that the prices on this price list don't reflect what customers who buy chips in any real quantities actually pay.

Allow me to illustrate that with an easy example.

Two of Intel's PC processors with the back side on the left and the front side on the right.

Image source: Intel.

How much for a cheap laptop chip?

Intel's processor price list says that the company asks $161 for a chip known as the Pentium N4200, which is based on the company's low-cost Apollo Lake architecture. This is an ultra-low-end processor intended for, effectively, bottom-of-the-barrel notebook computers. 

On Newegg.com, a major computer and computer component reseller, I was able to find a laptop powered by the N4200 that sells for $329.99.

Keep in mind the following facts about this computer: 

  • Newegg.com is going to make a profit when it sells the computer to a customer.
  • The computer manufacturer (in this case, Acer) is going to make a profit when it sells the computer to Newegg.com. 
  • The computer is made up of many components including a casing, display, motherboard, Wi-Fi chip, keyboard, trackpad, processor, system memory, and a hard disk drive. 

The manufacturing cost of this computer has to be somewhere south of $200 for the computer manufacturer to make a profit, and there's no way that this cost could be anywhere close to where it needs to be if Acer were paying anything close to $161 for the Pentium N4200 chip. 

What does it actually cost?

To try to figure out how much something as low-end as the Pentium N4200 costs, it's worth diving into Intel's financial results for clues. 

In 2016, Intel reported that its client computing group (CCG) platform revenue -- this revenue essentially includes PC processors and, when applicable, required support chips known as platform controller hubs (PCH) -- was approximately $32.9 billion. 

If we assume that Intel had roughly 90% worldwide PC processor unit share, then using market research firm IDC's estimate of worldwide PC shipments in 2016 of 260 million units, Intel's PC platform average selling price comes out to around $126. 

Keep in mind that most of Intel's PC processor shipments, per the company, are now based on the company's higher-end Core processor family (Pentium and Celeron represent Intel's value brands), and the company has reported continued mix shift toward its Core i7 processors (Core processors come in Core i3, Core i5, Core i7, and recently Core i9 variants). 

This means that a processor like the N4200 not only doesn't cost $161, but it likely costs substantially less than $126. My guess is that this chip really costs somewhere in the ballpark of $30 to $50 in the kinds of quantities that any serious PC vendor is going to want to buy. 

Intel's processor price list, then, is not much more than a mirage.

Ashraf Eassa owns shares of Intel. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.

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