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Crossroads for Intel

Posted by ryuzaki0 on from the road-ahead dept.

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."

35 of 123 comments (clear)

  1. Cyclical downturn? by tdvaughan · · Score: 4, Interesting

    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)?

    1. Re:Cyclical downturn? by erick99 · · Score: 5, Interesting

      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).

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    2. Re:Cyclical downturn? by Anonymous Coward · · Score: 5, Informative

      Most businesses are considered "cyclical". Basically, this means they do better whent he economy is better, worse when the economy is worse. i.e. they do better when people and businesses have more money to spend. People hold off buying when they don't have the money, because these are discretionary expenses.

      This is in contrast to some businesses which are fairly "noncyclical"--demand is relatively constant over time, regardless of ability to paty. Medical care is a classic example here--people don't decide to hold off on having tha heart attack until they have a better job.

      Then, there are some "countercyclical" industries--ones that do BETTER when people have less money to spend. Examples here are businesses that make "inferior" goods--cheaper substitues for more expensive products. They do better when people have less money, because in good economic times, their products are more attractive.

      To an extent, there's an aspect of being "cylical" to most businesses, but some are more tied to economic cycles than others. Intel makes a good case for being a very cyclical business--computing upgrades are a fairly discretionary expense, and delaying upgrades is a fairly common response to bad business climates. On the other hand, when the economy picks up, and people have money to spend, getting those computer upgrades they've been meaning to get for awhile becomes more attractive.

    3. Re:Cyclical downturn? by gadget+junkie · · Score: 2, Interesting

      "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.

      --
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    4. Re:Cyclical downturn? by nelsonal · · Score: 3, Informative

      Normally a cyclical industry is one that involves large capacity additions which make up both a signficant amount of the productive capacity and a signficant portion of the cost of each unit. Semiconductors and tankers are both classically cyclical industries. In real terms let us imagine that you and I have built a brand new fab, we perhaps raised $500 million in equity, got grants of $500 million and borrowed $2 billion. Perhaps we decide to compete in memory manufacture. Prior to our fab going on line let us say that capacity was 100/k 8" wafers per month. Following our fab now capacity is 140k 8" wafers per month. Each month to pay for our fab we need to generate sales of about $1600 per wafer to cover our fabs cost. If we did our market research well we should be able to cover that cost if we didn't (perhaps price declines signficantly at 145k wafers and one of our competitors increased their capacity by 20k wafers while we built our fab. Now everyone is producing to shut someone down (or waiting for demand to grow so that we can produce 160k wafers profitably (which could take several years). Upturns are caused by longer waiting by all competitors downturns are caused by capacity being added more quickly than demand, and the most money to be made is accomplished by being the only one to build before an upturn. Under those three rules (with no collusion) you will always have big upturns then overbuilding then downturns then upturns and you have a nice sine wave cycle. The overall trend of the sine wave is up, but the sinewave has a big amplitude.
      In processors and other high value chips this is less true (as engineering and design talent reduces the number of competitors you are dealing with allowing more normal capacity increases to take place. Over the last thirty years only three big semiconductor companies have reliably generated more cash than is required to build for the next cycle (Intel, Analog Devices, and Linear Technologies) all three compete with very few competitors and their products require a considerable amount of design before manufacture can take place.

      --
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    5. Re:Cyclical downturn? by supergiovane · · Score: 3, Interesting
      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.
      --
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  2. Maybe I'll do my part next year... by jmcmunn · · Score: 4, Interesting


    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)

    1. Re:Maybe I'll do my part next year... by Timesprout · · Score: 2, Insightful

      I would like them to only release chips within a regularly defined cycle of say 500Mhz speed increases rather than release every improvement they can squeeze out of the chip. I think people would find it easier to plan and commit to a purchase this way. I think processors are fast enough now to handle the needs of the vast majority and theres not a great deal to be gained by flooding the market with differerent processor speeds and people _always_ waiting to maybe purchase the next small incremental release.

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    2. Re:Maybe I'll do my part next year... by joib · · Score: 3, Insightful


      I would like them to only release chips within a regularly defined cycle of say 500Mhz speed increases rather than release every improvement they can squeeze out of the chip. I think people would find it easier to plan and commit to a purchase this way. I think processors are fast enough now to handle the needs of the vast majority and theres not a great deal to be gained by flooding the market with differerent processor speeds and people _always_ waiting to maybe purchase the next small incremental release.

      Umm, no. That wouldn't be a very good idea. The reason, in short, is price discrimination. By having a wide variety of products, they can better milk the customers. And the customers win too, since they can choose which product best matches their requirement. It's a win-win situation, so to speak.

  3. Is it a neat read... by Ghoser777 · · Score: 3, Insightful

    because it paints a major decline in the Intel empire, or because it actually has insightful commentary and information?

    And yes, I didn't RTFA.

    Matt Fahrenbacher

    --
    James Tiberius Kirk: "Spock, the women on your planet are logical. No other planet in the galaxy can make that claim."
    1. Re:Is it a neat read... by steevo.com · · Score: 5, Funny

      It is a neat read because I don't work at Intel anymore.

  4. Competition is good by ancice · · Score: 3, Interesting
    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.

  5. Hmmmm by antifoidulus · · Score: 5, Insightful

    problems at Intel, problems at Microsoft. Could it be that some companies just get too big for their own good?
    Happened to other comanies, just look at US Steel, in 1918 they represented 3% of the GDP of the US, but they got too big, and eventually competetitors, both at home and abroad ate up most of that.

    --
    Monstar L
    1. Re:Hmmmm by Anonymous Coward · · Score: 5, Insightful

      Not really comperable. Steel is a generic product where there's little brand loyalty, and essentially no product differentiation. Microsoft and Intel, on the other hand, make products that no one can make directly--you can compete with similar products, but some shop in Taiwan can't turn out Pentium IV's.

    2. Re:Hmmmm by jkrise · · Score: 2, Interesting

      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?

      -

      --
      If you keep throwing chairs, one day you'll break windows....
    3. Re:Hmmmm by cyngus · · Score: 3, Interesting

      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.

  6. Still... by StevenHenderson · · Score: 4, Insightful

    As long as Dell is almost exclusively Intel, then they ought to be just fine. It is Intel's exclusivity agreements that will sustain them in times like these, I'd wager. (Yes, I know Intel's problems aren't just in the desktop market, but I like to over-generalize).

  7. Xscale by mirko · · Score: 4, Interesting

    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.

    --
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  8. Intel aren't doing that badly in other areas by lukestuts · · Score: 5, Funny

    I hear the pipeline on the P5 is going to be so long that Halliburton want to license it for reconstruction work in Iraq.

    1. Re:Intel aren't doing that badly in other areas by Fulcrum+of+Evil · · Score: 2, Informative

      I hear the pipeline on the P5 is going to be so long that Halliburton want to license it for reconstruction work in Iraq.

      Well, you must have heard wrong. The Pentium only has 5 stages. Or did you mean whatever comes after the P4?

      --
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  9. Lack of vision by Anonymous Coward · · Score: 3, Insightful

    Intel has made some pretty big mistakes over the recent years, in some cases going against common sense:

    RDRAM, Itanium, 64-bit extensions for x86, frequency as sole measure of performance, ...

    It should be no surprise that now Intel's future is clouded. They have no one to blame but themselves.

    1. Re:Lack of vision by MtViewGuy · · Score: 3, Interesting

      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.

    2. Re:Lack of vision by joib · · Score: 2, Insightful


      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.

      I wouldn't say excellent. Itanium is a somewhat competetive cpu in the high end market, but it's far from the original goals of running in circles around the competition. Not to mention that currently Sun and IBM are selling dual-core cpu:s, which Intel isn't.

      As I see it, Itanium was a very interesting experiment in cpu architecture, that in the end really wasn't enough better than the status quo.


      Meanwhile, AMD brought new life to the X86 architecture with a modern developed from scratch CPU design using the Athlon CPU core.

      AMD is not alone. Ever since the original Pentium, Intels own x86 cpu:s have essentially been RISC processors inside, just like the Athlon.


      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.

      I agree, I think Intel made a big mistake by focusing on maximizing clock speed for the P4. Apparently they didn't foresee the rising importance of power consumption (and associated cooling).

    3. Re:Lack of vision by MtViewGuy · · Score: 2

      Ever since the original Pentium, Intels own x86 cpu's have essentially been RISC processors inside, just like the Athlon.

      That is true, but Intel's X86 core is still heavily derived from the CPU core pioneered on the Pentium Pro CPU of the middle 1990's. Indeed, the Pentium II/III CPU's were essentially improvements from the PPro CPU core.

      Meanwhile, AMD's Athlon CPU core was pretty much developed from the ground up (thanks to their acquisition of NexGen), and because it is close to a clean sheet design even the earliest Athlons were already out-performing the equivalent Pentium III CPU's on the equivalent CPU clock basis. Because the Athlon CPU core sported such high processing efficiency, when the Athlon XP CPU's came out AMD CPU's could still compete against the Intel Pentium 4 CPU's; for example, the Athlon XP 2400+ CPU matched up surprisingly well against the Pentium 4 2.4 GHz CPU even though the clock speed of the AMD CPU was was lower.

  10. Intel is still making money by Anonymous Coward · · Score: 2, Informative

    Despite Intels problems, they made a record revenue and profit report this year. They still know how to make money and some reports says that their yields are far better than others and this may be a sign of this.

  11. One word.. Inventory by tanveer1979 · · Score: 4, Interesting
    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
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  12. AMD dualcore Opteron by geeveees · · Score: 3, Informative

    In other news, there are some benchmarks on AMD's dualcore Opteron: http://episteme.arstechnica.com/eve/ubb.x?a=dl&s=5 0009562&f=174096756&x_id=1097194717&x_subject=Opte ron+dual-core+details+emerge&x_link=http://arstech nica.com&x_ddp=Y/

    It appears AMD designed the Opteron from ground up to be dualcore.

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  13. Intel Compilers by should_be_linear · · Score: 2, Informative

    I am predicting that Intel compilers department will be trashed soon. According to latest Coyote's benchmarks, GCC is caching up with performance. Moreover, you cannot improve performance of C++ compiler beyond certain limit, and it seems both intel and gcc (also MS) are close to that point. So, nobody will buy ICC to gain 5% on one app and loose 3% on another. Times when Intel had 30-40% over gcc will never come back.

    --
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    1. Re:Intel Compilers by Krondor · · Score: 2, Informative

      I am predicting that Intel compilers department will be trashed soon. According to latest Coyote's benchmarks, GCC is caching up with performance. Moreover, you cannot improve performance of C++ compiler beyond certain limit, and it seems both intel and gcc (also MS) are close to that point. So, nobody will buy ICC to gain 5% on one app and loose 3% on another. Times when Intel had 30-40% over gcc will never come back.

      This will only hold true if and when Intel and HP scrap all Itanium plans. Itanium processors do not do instruction prefetch. HP and Intel decided it was the compilers job to organize instructions for execution (a point I agree on). However, the vast majority of processors do have instruction prefetch, and GCC disagrees and believes that it is the processors job to organize instructions for execution. As a result, Itanium's GCC performance is absolutely pitiful. There is also no easy fix for this as changing GCC to do instruction prefetch only for Itanium is no small task, and obviously changing Itanium to have an instruction prefetch is also no small task. ICC, however, does do instruction prefetch on the compiler level, and thus results in much much better performance on Itanium then GCC. For Intel and HP to continue to market Itanium, they will need an adequate compiler. However, I don't see them selling Itanium much longer anyways so most likely neither will ICC. It would be nice if they would open source it though as decent competition to GCC couldn't hurt :).

  14. What do you hear.... by zogger · · Score: 2, Insightful

    ...from customers when they are new computer shopping? Are they adding primarily new boxes to what they are already running, or are they upgrading what they have? If it's upgrading, why are they upgrading?

    I'm asking the latter because it seems like computers got "good enough" for most business purposes already. But I don't *know* that, it just seems so. Is it really just because of the way business taxes are structured?

  15. (Near) future threat to Intel by News+for+nerds · · Score: 2, Interesting

    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.

  16. I think IBM will cause more trouble than AMD by cheros · · Score: 2, Informative

    Their new Power5 chip is a seriously good piece of engineering which will make a rather savage dent in the Intel market when people realise how good it actually is.

    Has anyone realised that it has an MTBF of well over half a century? More computing with less power: if you're running lots of blade servers this chip also solves your other big problem: heat.

    The moment IBM comes out with pricing that approache Intel (and, frankly, I would be surprised if that isn't coming) anyone competent enough to work out the real TCO (get the REAL facts ;-) will not even have to think twice.

    IMHO, in comparison Sun or AMD don't even feature as a threat..

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  17. x86 architecture still alive thanks to AMD. by MtViewGuy · · Score: 4, Insightful

    Actually, the x86 CPU architecture is still alive thanks to a company called AMD. :-)

    AMD's groundbreaking Athlon CPU core is far superior to what Intel has, and the Athlon XP showed that you don't need ridiculous clock speeds to get superior overall CPU performance, thanks to the the combination of the very efficient Athlon CPU core and generous on-die L1/L2 CPU memory caches. AMD's decision to put the memory controller onto the CPU die with the Opteron/Athlon 64 CPU's also demonstrates how to get superior CPU performance without running high CPU clock speeds like Intel needs to do with the Pentium 4 CPU's.

    1. Re:x86 architecture still alive thanks to AMD. by fitten · · Score: 2

      Actually, the main reason why the Pentium-M is considered a success is because it offers very respectible performance at very low power requirements. It was designed for laptops and blades.

      The Pentium-M has a number of very interesting technologies. For example, in lower power states, it can actually turn off parts of its caches to save power (effectively meaning it has smaller caches at lower power).

      The only thing the Pentium-M isn't strong (strong being measured by computational power per clock speed) in is FPU performance (again, a power saving compromise). Still... my Pentium-M 1.4GHz laptop can equal a Pentium-4M 2.2GHz (actually, it's just a smidgen faster than it) doing things like mp3 encoding using LAME. At integer work, I think it is even faster.

      A French site overclocked a Pentium-M a while back and showed that clock for clock, it is as fast or faster than an Athlon 64 on most things integer intensive but slower at FPU (32-bit software, of course) and that is with a slower bus to memory (they jumped it up to 533MHz QDR - DDR266 memory compared to the A64's DDR400) and no on-die memory controller while consuming less than 1/2 the power.

      I'd love to see Pentium-M EM64T CPUs out for the desktop (with a beefed up FPU subsystem).

  18. Making inroads? AMD Defeated Intel. HOW? by Anonymous Coward · · Score: 2, Insightful

    Remember when Intel followed AMD's 5 - 10 year chip naming using a number to identify the chip rather than using the raw MHZ speed? Yes, that was this year. Yes, that was Intel realizing that it ain't about how big it is, it's how you use it.

    And AMD has been my choice, as well as my companies choice, since 95. For almost 10 years AMD has been the cheaper, faster alternative, duplicating everything the Pentium has done and recently defeating it in most speed tests, forcing Intel to panic by releasing "Super Extreme Hyper-Upper-Cut" editions of thier Pentium four just to MEET the already released AMD 64 bit chips running on 32 bit technology.

    Thusly, it isn't that AMD (and Samsung??) is making inroads - they're in the lead, and Intel has been panicking for years.