Wednesday, October 25, 2006

Calls of Note Part 1

- Prudential notes that according to Mercury, Intel (NASDAQ:INTC) MPU ASPs have declined by 22% over the past 12 months, after enjoying a 3 year period of stability. Drilling down further into the Mercury data reveals 2 concerning trends:

1) In the desktop MPU segment, ASPs declined by 23% over the past 1.5 yrs, and the emergence of "Midrange" MPUs (priced at new ASPs in the "seam" between historical Performance and Value price points) appears to be cannibalizing high end MPU sales. Our concern is that this segment continues to cannibalize high end MPUs, causing continued price erosion in the desktop MPU stack.

2) In the mobile MPU segment, ASPs declined by 21% over six quarters, with price pressures in both low-end and high-end segments.

Firm thinks that the ASP erosion is driven by 1) the high-end MPU is providing more functionality than the mainstream consumer needs or is willing to pay for, and 2) after struggling in 2002, AMD has emerged with both a product cycle and material capacity for the first time in perhaps a decade. They don't expect these dynamics to materially change and expect continued ASP erosion for Intel.

Firm remains concerned about Intel ASPs and margins.They remain Underweight the stock.

Notablecalls: Not actionable but good to know category.

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