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Nehalem and Atom save Intel's Q2 cookies

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Intel's decision late last year to hold back the launch of the 'Nehalem EP' Xeon 5500 processors for servers until the end of the first quarter of this year seems to have played out exactly as planned, as the chip maker's financial results reported yesterday bear out.

Launching the Nehalem EP chips for two-socket servers late last year or even earlier this year instead of their late March debut might have helped Intel's numbers in the first quarter. To be sure, Intel's Q1 sure could have used some help, with sales down 26 per cent to $7.1bn and net income down 55 per cent to $647m. But once the economic meltdown hit in September 2008 and PC and server sales started to slow, Q1 was going to be awful no matter what and Intel's partners had plenty of inventory of earlier quad-core Xeon processors for servers they were not going to move in that awful economic climate.</p.

Hence the Nehalem EP chips came out at the end of March, despite the fact that many motherboard makers were itching for the Nehalem EP to start shipping in early February, as was apparently the original plan. Intel pushed the chips out as far as it could, while still being able to say they shipped on time in the first quarter.

And this was a smart move, because server makers burned off their old Xeon 5400 inventories and used the momentum Intel has been building up for its much better Nehalem architecture to pump up their own Q2 sales (and therefore Intel's Q2 sales). The Nehalem desktop and server chips all sport Intel's QuickPath Interconnect, an homage to Advanced Micro Devices' HyperTransport interconnect that delivers three to four times the memory bandwidth of the prior frontside bus architecture.

The Nehalems have on-chip DDR3 main memory controllers and lots of new technologies for virtualization and power management. The Nehalem technologies are more in tune with the needs of server buyers today than Intel's prior 'Clovertown' Xeon 5300s and 'Harpertown' Xeon 5400s for two-socket boxes and are better able to compete with AMD's quad-core 'Shanghai' and six-core 'Istanbul' Opterons too.

So it is no surprise that Paul Otellini, Intel's president and chief executive officer, gave the fast ramp of the Nehalems a lot of credit for stabilizing Intel's financials in Q2. Of course, the lack of Nehalems in Q1 destabilized its financials then, but no one wanted to bring that up on yesterday's call with Wall Street analysts.

"We launched our Nehalem EP server processors at the end of Q1 and in just one quarter from launch, Nehalem already makes up over one-third of all of our dual socket server shipments," Otellini explained in the call. "We expect the ramp to continue with Nehalem shipments crossing over the 50 per cent mark in August."

While this is good, it doesn't sound as juicy as what Boyd Davis, general manager of Server Platforms Group marketing at Intel, said back at the end of May, when he declared that the Nehalem EPs would comprise 50 per cent of chip shipments for two-socket servers "by mid-August, if not a little bit sooner."

Anyway, Otellini reminded everyone yesterday that the eight-core "Nehalem EX" chips for four-socket and larger x64 servers were on track for shipment in the second half of this year and added that Atom chip sales rebounded in Q2 after a slump in Q1, rising 65 per cent sequentially to $362m. Intel does not break out revenue numbers for the Xeon product line, but did say that overall unit shipments in Q2 were higher compared to the first quarter and that average selling prices for its chips were down sequentially - and were "slightly lower" even when you take the low-cost Atom chips out of the mix. So you can't blame the decline in ASPs on the Atom. You have to blame the economic meltdown and stingy IT shoppers.

Looking ahead to the rest of the year, Otellini said that on the enterprise front, Intel was "not planning for a big refresh this year," adding that "there's likely to be a refresh coming" because some companies have desktops that are four years old, notebooks that are three and a half years old, and servers that are about three years old. But Intel is hopeful that average selling prices will start to be impacted by improving server sales. "I do think that we are on the edge of a fairly strong build-out of server capacity both in enterprise and cloud over the next few years, and Intel is particularly well-positioned to benefit from that. That will have an uplifting impact on ASPs."

While the individual prices of Intel's chips have not changed appreciably over the past several quarters, what has changed is the mix of enterprise versus consumer shipments of chips. Enterprises buy the expensive and powerful stuff, and consumers buy the cheaper stuff. And until companies start upgrading their servers and PCs with a certain amount of vigor, ASPs are going to be depressed even if the Nehalem ramp is strong. ®

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