Intel Witnessed A Rise In Data Center Chip ASPs Last Quarter

Intel Data Center Group (DCG) witnessed a 4% rise in the average selling prices of the chips it sells in the last quarter. Growth in the average selling price has been a key part of the Data Center Group (DCG) in previous years with unit growth also being important for the company, notes Pantagraph.

ASPs rising for Intel

The increased unit shipment had been the most important factor behind the revenue growth that Intel enjoyed throughout most of 2016. The average selling prices for chips declined in the first, second and third quarter of last year, but the unit growth in the first and third quarters was quite robust.

Year-over-year unit growth was low in the fourth quarter, but growth in average selling prices continued for the chip maker. During the most recent earnings call, Intel did share some details on what pushed up the average selling price of the chips in the fourth quarter.

Coho Capital 2Q20 Commentary: Podcasts, The New Talk Radio

Coho Capital LogoCoho Capital commentary for the second quarter ended June 30, 2020. Q2 2020 hedge fund letters, conferences and more Dear Partners, Coho Capital returned 46.6% during the first half of the year compared to a loss of 3.1% in the S&P 500. Many of our holdings, such as Netflix, Amazon, and Spotify, were perceived beneficiaries Read More

According to CFO Robert Swan, the increase in the average selling prices can be attributed to two main reasons. First, the company made a transition in its product line from its older Haswell architecture-based server products to newer Broadwell architecture-based server products.

“Those dynamics where we’re delivering better performance for our customers, we’re able to capture some of that in [average selling prices] and we saw a little bit of that in the fourth quarter,” Swan said.

An interesting fact worth noting is that the same Haswell-to-Broadwell transition is also responsible for higher product manufacturing costs, and hence, it has negatively affected product margins, notes Pantagraph.

Talking about the second factor, Swan said Intel is “getting those clients to move up the stack in terms of high-performance server products” within the communications and networking portion of the company’s data center business.

Rising investment in R&D

Intel’s most recent earnings report indicated that the investment it is making in research and development has increased as well. In 2016, the chip maker spent $12.7 billion on R&D, of which $3.3 billion was spent in the fourth quarter. This was up from the $3.1 billion it invested in R&D during the fourth quarter of 2015.

Comparatively, in 2016, Intel spent $8.4 billion on marketing, general and administrative (MG&A) expenses, including just $2.2 billion in the recent quarter. This was less than what it spent on R&D.

On Tuesday, Intel shares closed down 1.6% at $36.82. Year to date, the stock is up almost 2%, while in the last year, it is up almost 19%.