Intel Gets Back to Basics
By Jeffrey Wu, iSuppli Corp. -- EDN, September 8, 2006
Divestitures and restructuring efforts at Intel Corp. indicate the company is successfully refocusing on its core business in PC microprocessors (MPU) and core logic chipsets, according to iSuppli Corp.
Intel in recent years has encountered multiple challenges, including lost market share in microprocessors and flash memory, flat revenue growth, disappointing sales numbers and non-performing business divisions. Recognizing the magnitude of the company’s problems, Paul Otellini, Intel’s CEO, in July announced layoffs and a sweeping reorganization. In a company memo, Otellini cited Intel’s “slow and ineffective decision-making, resulting, in part, from too many management layers,” as a factor behind the company’s lackluster performance.
However, Intel has already begun taking steps toward recovery this summer, selling its communications semiconductor and signaling businesses, cutting costs and releasing a new series of MPUs aimed at different applications: Conroe for desktops, Merom for laptops and Woodcrest for servers.
iSuppli believes that Intel is back on track with this new product line-up and with its restructuring efforts. However, Advanced Micro Devices Inc. (AMD), newly merged with graphics chip maker ATI Technologies Inc., will remain the biggest challenge for Intel’s turnaround scenario.
A Failure to Communicate
Marvell Technology Group Ltd. in June acquired Intel’s Communication and Application Process Business for $600 million in order for Marvell to compete more effectively with communications chip leader Texas Instruments Inc. as well as with Broadcom Corp. and Freescale Semiconductor Inc.
Intel initially ventured into the highly competitive communications processor market in the late 1990s as part of its diversification effort. In the following years, Intel acquired Level One Communications Inc. and parts of Digital Equipment Corp. in an attempt to further enhance its capabilities in the communications field.
However, a recent survey of handheld device original device manufacturers (ODM) in the smart phone and GPS navigator sectors suggests Intel’s communications processors were not positively received by these ODMs in terms of performance and technical support. Realizing it was not in a good position, Intel exited the market by selling its communications operations to Marvell.
| Date | Description |
| June 27, 2006 | Intel and Marvell announce that they have signed an agreement for Intel to sell its communications and application processor business to Marvell for a purchase price of $600 million plus the assumption by Marvell of certain liabilities. |
| July 13, 2006 | Intel announced that it would lay off 1,000 managers--about 1 percent of the company's workforce--as part of its effort to streamline its operations. |
| August 9, 2006 | Intel announced that it would sell its Media and Signaling business to Eicon in order to focus its investments on its core communications and embedded businesses. |
It’s All About Networking
However, Intel has no plans to exit the networking chip business, continuing to invest heavily in next-generation technologies, including Wi-Fi and the emerging Orthogonal Frequency-Division Multiplexing (OFDM)-based system for WiMAX, the next-generation wireless technology for mobile computing.
iSuppli believes Intel has two motivations for sticking it out in the networking chip business.
First, Intel can leverage its core PC microprocessor business effectively to promote its networking products, such as it did with its successful Wi-Fi-based Centrino campaign in 2003 that made the company a household name in mobile computing and that has contributed significantly to its growth. Understandably, Intel is looking to prepare itself for WiMAX, the successor technology of Wi-Fi, and to replicate its success when factors such as infrastructure deployment are ready.
Second, Intel’s investment in WiMAX today will be rewarded by the PC industry and the wireless handset business in the future if WiMAX becomes a mainstream 4G technology for mobile phones.
OFDM-based WiMAX can support theoretical data transfer rates of up to 70Mbit/sec. over a 20MHz bandwidth, which is significantly higher than the theoretical data transfer rates of 10Mbit/sec. to 14Mbit/sec. for 3.5G cellular technologies like High-Speed Downlink Packet Access (HSDPA).
Although there are hurdles to the technology–such as WiMAX mobile devices’ backward compatibility with 3G and 3.5G CDMA networks–wide adoption of WiMAX as a cellular technology may become a reality, based on close collaboration between the WiMAX Forum and existing cellular technologies.
AMD’s Challenge
While Intel’s diversification efforts distracted its engineering and organizational resources during the past few years, its number-one competitor, AMD, has taken advantage by beating Intel to the punch on key microprocessor releases such as its 64-bit server Opteron MPUs that were launched more than a year before Intel brought its competing Nocona chip to market.
This lag in product development has pushed OEMs to re-evaluate their product roadmaps. Following AMD’s release of Opteron, IBM, Sun and Hewlett-Packard announced they would launch Opteron-based servers in 2003 and 2004. And Dell, which had been using Intel MPUs exclusively, announced in May 2005 that it would begin using AMD chips in its high-end servers. Some industry sources indicate AMD might have locked in commitments to supply as many as 40 percent of 64-bit microprocessors used in certain Dell server series for the remainder of 2006.
But it isn’t only the server side that AMD is making inroads with Dell. Dell’s announcement on August 17 confirmed that it would launch Dimension consumer desktop PCs with AMD microprocessors in Q4, which will be manufactured by Taiwan-based ODM MiTAC. Another Taiwanese ODM, Quanta, is believed to start building and shipping AMD-based notebook computers for Dell in the coming quarters.
According to iSuppli’s Global OEM Manufacturing Analysis, Quanta Computer Inc. was Dell’s biggest notebook ODM partner in 2005, accounting for up to 47.4 percent of Dell’s notebook PCs in 2005.
The AMD/Dell deal will further strengthen Quanta’s position with Dell, which could ramp up AMD-based notebook computers fairly easily in response to market acceptance.
Jeffrey Wu
is an analyst for EMS and ODM Services for market research firm iSuppli Corp. For learn more about OEM/supplier relationships in the PC industry, read Wu’s new report entitled:
Global OEM Manufacturing Analysis (GOMA) Q2 2006: Compute Systems
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