Crossroads for Intel

pillageplunder writes "Businessweek offers a pretty balanced read on what challenges Intel faces in the upcoming year. Rivals Samsung and AMD are making inroads on Intels core businesses, an expected cyclical industry downturn looms next year, and with several critical delays in new (for Intel) markets puts its strategy at risk. A neat read."

Comments

Cyclical downturn?

[tdvaughan]

Could someone explain why the semiconductor industry is 'cyclical'? What is it which makes a downturn predictable, or is it a self-fulfilling thing (lack of investment during predicted downturns causes otherwise unnecessary lack of performance)?

Re:Cyclical downturn?

[Anonymous Coward]

Funny thing is a new headline I just saw. IBM Chief sees global tech spending rise.

Re:Cyclical downturn?

[erick99]

I've been on the marketing & sales side of computers for 21 years (started in Oct '83) and the only cycle I've ever been able to reliably predict is a slow down in corporate purchasing during the month of February. That does not necessarily relate at all to the semiconductor cycle, if there is one. I used to meet regularly with Intel marketing reps and they never mentioned a cycle. There may well be a longer term cycle, such as a four year or five year cycle where so many machines are bought at the beginning of a major product cycle such as the intro of the P4, for example. In that case, a lot of machines would come out of service starting at 2 years (leases) and out to five years (fully depreciated). This is all to be taken with a grain of sale of course - there are just too many variables (intervening and contravening).

Re:Cyclical downturn?

[gadget junkie]

"Could someone explain why the semiconductor industry is 'cyclical'? What is it which makes a downturn predictable, or is it a self-fulfilling thing (lack of investment during predicted downturns causes otherwise unnecessary lack of performance)?"

It is relatively simple: any new plant, or major refurbish of an existing plant, adds so much to capacity that demand takes a while to catch up.
If demand grows even slightly less than forecast, Capacity utilization falls, and the company ends up running the plant for cash, i.e. pricing down the product to move inventory and recoup part of the building cost, making huge losses in the process.

This is particularly relevant at this point in time for Intel and AMD, since the forecast for Corporate computer demand have been way off the mark these three years.
Why they were so high really escaped me at the time: for a generic office computer, any duron is really overkill, and corporations can refuse to install the latest and greatest MS operating system and go for more of what they have now.

Re:Cyclical downturn?

[supergiovane]

You're Mr. Intel. You have to explaine to your shareholders that AMD got it right and they are now driving innovation (e.g. x86-64) and now you're the one who has to catch up. What would you say?

1. We're in deep shit, boys! You'd better invest your bucks in another company.
2. It's the cyclical behaviour of the semiconductor history. Now we're getting hit, but next year we'll kick their asses and we'll reduce them into dust. So, don't worry and give us your money.

Maybe I'll do my part next year...

[jmcmunn]

And buy a new processor to upgrade my 300Mhz PII I am running here at home. Nahh....it still loads Slashdot just fine. I'll wait till the next generation come out and then buy one of the current chips. (I have been saying that for 4 years now)

Competition is good

[ancice]

Competition is good. At the worse, if it doesn't accelerate the progress of better products, it will at least create a check on the dominant players.

Although Intel is lacking on the 64bit side.

Xscale

[mirko]

The i86 architecture is dying and Intel could not release decent 64 bit proc at time, so, they'll have to rely on the Xscale processors which are, after all, ARM compatible.
As the ARM has had the hugest sales in the world during the last years (not on the desktopm, but everywhere else), this'd just imply that Intel will keep its domination but outside the PC market.

Re:Hmmmm

[jkrise]

Excellent point! I think we're very lucky that mfrs. of these items do not have a near-monopoly situation:

1. Memory.
2. CD, DVD drives and media.
3. Network cards.
4. Hard disk drives.

If one or more of these items were controlled by patents / monopolies; the situation could be alarming... Just wondering - can Intel patent it's chip pin-outs / signal levels (not the internal design) in such a way other mfrs. cannot replicate the function?

-

One word.. Inventory

[tanveer1979]

The Semiconductor industry inventory stats are ones which give CEOs nightmares. Actually semiconductor companies mostly make chips which are sold to big buyers like Siemens(modems), ENI(modems), DELL, Nokia etc., So these companies tell the semiconductor guys I need so many chips for so many cell phones/cameras etc., And these guys over order, by a small margin. Next year new tech old models are sold for scrap and again inventories rise. In many cases over ordering reaches levels which are uncomfortable. You cant throw away 20% of your cell phones at cost price, can you? So they dont order. But Semiconductor companies have huge Fabs running. And when such cases arise you have fabs operating at half capacity or even lower. And this leads to big losses. Another problem is that a new chip comes from design to fab about 6 months before production begins, and if problems come in the chip it may actually see the vendor after one year! So what do we have here. Based on demand this year, we plan for next year and if inventories pile up its bad luck.

If you wonder why cant semiconductor companies reduce production, the reason is that when we come out with a chip, ie design a chip there a minimum number which is required for the chip to be profitable. This number is in the range of 500000+ units. Such things are hard to predict. In case of a DSL/cable modem chips the design and conception start one and a half years before release to fab. And six months after that full blown production starts. So we have to know 2 years in advance what to do people want. Its 2 years of R&D by over 100 engineers which leads to a chip. And look at the infrastucture investment. Farms of 100s of 64bit 2GHz+ machines, Ultrasparcs etc., running for 1.5 years simulating, testing, designing.

Get the idea? Chip design is a costly business, and unless market analysts get more accurate instead of being stupidly bullish, this cyclic downturn may be much softer

Re:Lack of vision

[MtViewGuy]

The biggest fiasco for Intel was the Itanium project, which showed while it was a technically-excellent CPU it also exposed the big problem of lack of software to support the CPU.

Meanwhile, AMD brought new life to the X86 architecture with a modern developed from scratch CPU design using the Athlon CPU core. Note that AMD's CPU's have truly impressive performance per CPU clock cycle, and AMD's decision to move the memory controller onto the CPU die with the Opteron/Athlon 64 CPU's allows AMD to match the performance of the latest Intel Pentium 4 CPU's without Intel's need to run very high CPU clock speeds.

(Near) future threat to Intel

[News for nerds]

in high-performance processor market is, IBM. Currently its PowerPC chips power Macintosh PC and Nintendo console. In Xbox 2 console, IBM succeeded Intel's deal with Microsoft for Xbox. IBM's Power architecture is going to be embedded in massive volume for both Nintendo and Microsoft consoles. Then, another architecture developed with Sony and Toshiba, STI's Cell will power PS3 console and other servers/workstations. IBM fabs will help production of AMD processors in forthcoming generations, too.

Re:Hmmmm

[cyngus]

I think that's pretty much the story of corporations through all time. I think that extends even beyond corporations, to countries.

Let's look at Intel and Microsoft. Both rose to dominance because they had a good product at the right time, with good marketing. (I'm a Mac fan, I think windows is sh*t, but there's no denying that Microsoft has made computers more accessible to a wider audience, although Apple has always made the better product.) Now both are having some problems, why? Three main reasons:
1) Everybody targets the leader - if you're the leader in an industry everyone can see your weaknesses and target them to take you down. You're the guy to beat and people are going to try to do that.
2)The leader is big, and knows it - the leader of an industry is typically big, has big sales, big profits. They spend accordingly and build out accordingly, adjusting to lower profits is harder when you're used to them.
3)The leader is typically slower - 3 follows from 2, in that if you're a bigger company its harder for you to change course and take advantage of new ideas and trends. Firstly, your organization is larger and therefore harder to manage. Secondly, your customers tend to hold you more accountable to servicing them, the underdog gets more leeway, because he's the underdog.

So companies tend to start out small, grow, become too big to adjust quickly to a changing environment and then die or breakup. Some companies (IBM is a good example)manage to just fall into decline for a while and then emerge as a power player again, but this is hard to do for several reasons such as regaining customer confidence, having enough money to engineer the turn around, and the difficulty of changing the corporate culture to fit the reinvented company.