Inspired by a recent discussion I had over on Seeking Alpha, I thought it would be a useful exercise to try to estimate the average selling prices of Intel's (NASDAQ:INTC) server processors. Investors who simply look at Intel's public processor price list document (available on the company's investor relations website) might think that major customers are forced to fork over many thousands of dollars per chip on average.

However, if we do some math, it's clear that Intel's average selling prices are quite a bit lower than that. Let's dig in.

Data, estimates, and calculations
Calculating the average selling prices for Intel's server chips is actually done with a very simple equation: total server processor revenue divided by the number of units sold. Sadly, although Intel provides the first number, it does not provide the second.

Fortunately, third parties do.

According to Statista, worldwide server shipments in 2015 totaled 12.1 million units (and let's assume Intel has 95% unit share). Now, it's important to keep in mind that a server doesn't necessarily have just one processor; it can have one processor, two processors, four processors, or even eight processors (though I believe the majority of server shipments are dual socket or greater).

For this analysis, I assume the following percentages by server processor count:

CPU Count

Percentage of Total Server Shipments

1

15%

2

70%

4

10%

8+

5%

Data source: Author estimates.

Using the numbers above, I estimate (assuming 95% share for Intel) that Intel shipped about 27 million server processors in 2015.

Now, according to Intel, Data Center Group revenue that came solely from platform sales (which the company says includes processors and chipsets) totaled $14.88 billion in 2015. If we assume one chipset per server, and we assume average selling price on said chipset of about $30, then this means total CPU revenue came in at around $14.54 billion.

Dividing $14.54 billion by 27 million and we get an average selling price per chip of about $538.

Now, keep in mind that there are a lot of assumptions made here, so this number can vary depending on what one assumes for percentages of 1-socket, 2-socket, 4-socket, and 8-socket systems. However, I would feel very comfortable saying that Intel's server processor average selling prices sit at about $550 give or take $75 or so.

Intel's strategy is to try to grow both units and average selling price
A nice analogy that Intel server chief Diane Bryant has used in the past is to view server chip sales in terms of capacity rather than as simple unit sales.

Indeed, the reasoning behind this is quite sound. For its money, a major data center will need to put in a certain level of performance to meet the anticipated demands on the server. Let's make a toy example and suppose that the data center customer needs 12-cores' worth of performance.

That data center customer can either buy two six core chips or that customer can buy a more expensive twelve core chip to meet that same demand. If the customer goes with the two six core chips, Intel sees greater units at lower average selling price, but if the customer goes with the single twelve core chip, Intel doesn't see the uptick in unit sales but does see a boost in average selling prices.

Obviously Intel would like to see high growth in units and average selling prices, but the thing that investors should focus on is total revenue rather than simply looking at either average selling price or unit trends in isolation.

Ashraf Eassa owns shares of Intel. The Motley Fool recommends Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.