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?

[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?

[Anonymous Coward]

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.

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)

Hmmmm

[antifoidulus]

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.

Re:Hmmmm

[Anonymous Coward]

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.

Still...

[StevenHenderson]

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).

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.

Intel aren't doing that badly in other areas

[lukestuts]

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

Re:Is it a neat read...

[steevo.com]

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

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

x86 architecture still alive thanks to AMD.

[MtViewGuy]

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.