Intel rejects investor call to give up its hopes and dreams
'We don't plan for failure'
"Have you ever thought about being like Philip Morris?"
Now that's just rude.
Some Wall Street type wanted to prove that his Zinger 101 mail order kit was worth the $1,995 asking price. So, he nailed Intel CEO Paul Otellini with that very question during a meeting held yesterday in Santa Clara.
Intel brought its largest investors to the corporate headquarters, hoping to educate the financial wizards and provide them with plenty of access to the executive ranks. The analysts returned the favor by letting Intel know that $7bn in net income and $12bn in cash (2007) just don't impress like they used to. [You know, like when fiscal responsibility and the dollar meant something - Ed.]
The Philip Morris dig was the investor's way of asking Otellini, "Why don't you just give up on your expansion hopes and dreams and concentrate solely on making PC and server chips."
The investor suggested that Intel's decision to dig deeper into the mobile, embedded and low-cost PC markets could end up as yet another waste of time. Please refer to Itanium, XScale, Intel's web hosting business and any number of other underwhelming exercises for past examples of Fail.
Why not just sell your chips and grow revenue at a modest rate? If that keeps working out, you can eventually move into cigarettes and processed cheese.
"Our focus is on growth," Otellini said. "Planning for failure over growth is not something I spend an hour a year thinking about."
Thanks to more energy efficient chips, better manufacturing techniques and new microprocessor lines such as the Atom mobile parts, Intel once again thinks it can crack into tempting, large markets.
The company expects Intel processors to make their way into more embedded systems such as cars, ATM machines, gas pumps, storage boxes, refrigerators and hooker's shoes. In addition, Intel would like to bust into the market for less-functional but still capable PCs used mostly for surfing the web. Otellini expects these machines to make heavy use of open source software and to serve as primary computers for the less fortunate as well as internet access throwaways for the privileged. Last and you're damn right not least, Intel plans to confront ARM for a place in the ultra-mobile PC and mobile device markets, while also having a revitalized go at the consumer electronics space, sitting inside set-top-boxes and the like.
Each one of these businesses could translate into $10bn in revenue for Intel, according to Otellini.
"We think we can triple the market for our products," he said. And that proclamation "does not assume home-runs in each market."
While Otellini focused on long-term growth, the investors could not pull themselves away from more immediate concerns. Earlier this week, Intel lowered its first quarter gross margin forecast, citing plummeting prices for NAND memory as the culprit.
Intel is in the midst of spinning out its NAND and NOR memory operations as separate businesses, and Otellini made a "personal commitment" to turn these companies into profitable operations - or else.
"This (memory) business will not be a drag on the Intel corporation," he said.
That all sounds well and good, but the investors remained skeptical. After all, Otellini noted that Intel shipped twice as many NAND bits quarter-over-quarter, only to be pounded by the pricing. When doubling memory revenue hurts you, things have reached a critical stage.
During a question and answer session, the investors returned to the memory issues again and again even though memory sales make up a very small fraction of Intel's overall revenue.
"We entered the NAND business assuming we would make money," Otellini countered. "I intend to get that business into that position."
Otellini then tried his best to make the investors, er, forget the memory issues by pointing them towards an All Intel world.
Intel's growth strategy revolves around a familiar refrain - the x86 architecture makes life better on everyone.
Looking at the Atom products, for example, Intel claims a software edge over ARM.
Companies such as Adobe and mobile game maker Glu relish the idea of crafting software for just one instruction set rather than writing versions of their code for a wide range of ARM variants, according to Otellini. Apparently, Adobe has 150 versions of Flash for ARM chips and just one for Intel products, while Glu makes 25,000 versions of its Transformers game for various mobile devices. That sounds like an awful lot of versions to us, but we'll trust the Little Otter.
Intel will throw a chip called Diamondville (Q2) at the "net top" internet access devices, Menlow (Q2) at mobile internet devices, Sodaville (2009) at consumer electronics and an embedded version of Menlow (Q3) at embedded devices.
The chip maker also expects to serve PC customers with chips that combine standard processors with graphics processors. By 2010, Intel hopes to throw the full weight of its manufacturing expertise at both CPUs and graphics products, meaning that the graphics parts will be built with the latest and greatest technology.
Turning away from chips for a moment, Intel EVP Sean Maloney discussed another nice add-on for PC buyers. The company plans to release a remote wake-up and shutdown tool for computers that will let customers access their machines remotely and then power down the systems when they're done pulling files.
Little Otter - Big Show
We thought Intel's brass boys put on a rather solid show for their precious investors. Otellini and friends demonstrated that Intel's 45nm manufacturing prowess stands as a big edge for the company and predicted that 32nm should proceed just as well.
In addition, Intel continues to try and cut as many costs as possible, including the disposal of more than 20,000 workers from a high of just more than 100,000.
Investors love that kind of talk, even when they're hung up on issues such as slumping gross margins.
Otellini, in particular, seemed in his element during the event, using more force than usual to counter notions such as Intel turning into a boring Philip Morris replica.
Now all Intel has to do is live up to its promises, which has proved tough in the past. ®