At last year's Intel (INTC 3.60%) investor meeting, investors were treated to the harsh reality that the company's latest mobile processor family, known as Bay Trail-T, had a huge problem in the form of a bloated platform bill of materials cost. This meant that even if Intel offered competitive chip prices, the cost to actually build systems around Intel's chips was so high that it was simply prohibitive.
In a bid to gain traction in the tablet world, Intel decided to provide contra-revenue in order to "offset" the higher platform costs that Intel's chips required. While Intel gave some hints last year as to how much it was providing in contra-revenue per platform, the company gave more details this year, which allows investors to get a really good sense of just how much Intel is charging for its platforms.
(Almost) Everything we need in one convenient slide
Reproduced below is a slide from the presentation by Intel CFO Stacy Smith:
Source: Intel.
Note that Intel claims that the "BoM delta" of Bay Trail is ">$15." From the comments made last year and this year, the delta for "full" Bay Trail is almost always between $15 and $20; so, for this analysis I'm going to use the midpoint at $17.50.
Also note that the "cost" that Intel gives for SoFIA LTE is "40% of Bay Trail" with a "BoM delta" of $0. For SoFIA 3G, the cost is 25% of Bay Trail and, again, $0 "BoM delta."
If the cost of Bay Trail is X, then the "full kit cost" of SoFIA LTE is 0.4X. Based on the data given, we can construct the following cost equation:
X = 0.4X + $17.5
Solving for X implies that the "full kit cost" of Bay Trail-T -- the full version, not the "cost reduced" one that Intel recently rolled out -- is approximately $30. SoFIA LTE, then, costs an OEM $12, while SoFIA 3G costs an OEM just $7.50. It's not clear whether the SoFIA LTE/3G "full kit costs" include the additional RF chip pictured here.
However, if I had to guess, I'd bet that the "full kit cost" for the SoFIA products includes the separate RF chip as it also includes Wi-Fi, GPS, as well as the audio/PMU subsystem. Having all of this functionality integrated onto one chip is likely key to the bill of material savings over the Bay Trail platform.
What this tells us about mobile chip prices... and Intel's density obsession
Intel claims that it had designed Bay Trail-T for the "high-end" of the market. From the math done above, it looks as though the company was hoping to get about $30 for a "full" Bay Trail-T. At the same time, from the numbers above, we know that low-end, integrated apps processor and baseband 3G and LTE solutions go for about $7-$8 and $12-$13, respectively.
In other words, mobile chips are pretty cheap.
During the investor meeting, Intel talked about how it plans to move its entire mobile processor line -- from the very low-end SoFIA products to the high-end Broxton -- to its 14-nanometer manufacturing technology in 2016. It's no coincidence, then, that Intel has been laser focused on improving the density of its 14-nanometer process. It will need every cost structure edge that it can muster if it is to be successful in this market.
