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WIKI ANALYSIS
Intel, Inc. (NYSE:INTC) is the world's leading semiconductor producer and has been the industry leader since the inception of the personal computer. Intel produces products for many facets of advanced technology including flash memory products, motherboards, wired and wireless connectivity products and networked storage products.
Since the 1980s Intel has seen growing competition from a number of companies but none more significant than Advanced Micro Devices (AMD). Intel has been in the industry longer than AMD and, with 76.7% market share and 79.7% of the revenue share for micoprocessors, maintains a significant lead over its smaller rival.[1] Intel's net income of $5.2 billion for FY08 when compared to AMD's reported loss of $3.09 billion gives a good picture of the advantage Intel enjoys when allocating money towards R&D($5.722B by Intel compared to AMD's $1.84B). Such high R&D funding has allowed Intel to maintain its leadership position in the semiconductor industry.[2][3]
Intel has strengthened its lead with the release of a new line of processing technology (45nm), known as the Core i7. Chips using this technology are faster and consume less power.[4] AMD rolled out its own 45nm release during the 4Q of 2008.[5]
Company Overview
Robert Noyce and Gordon Moore founded Intel, Inc. in Santa Clara, California in 1968. Intel began as an engineering and technology company and developed the first microprocessor chip in 1971. Upon the invention of the personal computer (PC) microprocessors became Intel's main business. Intel has always enjoyed the largest market share in the industry and only began facing competition in the 1980s. Since it was founded Intel has always been on the cutting edge of microprocessing technology.
Business and Financial Metrics
The slowing of the global economy in the past year led to a decrease of 2.1% in the net revenue for FY08 ($37.5B) from $38.3B in FY07.[3]
On July 14th 2009, the company released their second quarter earnings report. Intel reported revenues of $8 billion which were $879 million more than the 1Q-2009 but still lower than the earnings from the 2nd quarter of 2008. In light of the European Commission's anti-trust violation liability the company recorded a loss of $398 million when including the fine levied.
However the company is optimistic of its future earnings, with the recent acquisition of Wind River Systems, Inc. and the introduction of industry first 34-Nanometer NAND Solid State Drives (SSDs). Intel is predicting that the new manufacturing and technological advancements with the development of these drives will help reduce the price of SSDs by 60%, thus increasing market acceptance and market share.[6][7]
The following table highlights the financial metrics for the firm over the last three years.[8]
| Years | 2008 | 2007 | 2006 | 2005 | 2004 |
| Net revenue[3] | $37,586 | $38,334 | $35,382 | $38,826 | $34,209 |
| Gross margin[3] | $20,844 | $19,904 | $18,218 | $23,049 | $19,746 |
| Research and Development Costs[3] | $5,722 | $5,755 | $5,873 | $5,145 | $4,778 |
| Operating Income[3] | $8,954 | $8,216 | $5,652 | $12,090 | $10,130 |
| Net Income[3] | $5,292 | $6,976 | $5,044 | $8,664 | $7,516 |
Business Segments
Intel sells its products to a number of different types of customers:
- Original Equipment Manufacturers (OEMs) and Original Design Manufacturers (ODMs) are customers who produce computers, handheld devices, and telecommunications and network communications products. The products that these manufacturers produce rely on the processors and other products that Intel makes.
- PC and network communications product users are customers (individuals, small and large businesses, etc.) that buy Intel's products through distributors, resellers and retailers across the world.
- Other manufacturers including producers of a broad spectrum of industrial and communications equipment also have significant for Intel's products.
Digital Enterprise Group (DEG)
This group manufactures products that are incorporated into desktop and nettop computers, enterprise computing servers and workstations, a broad range of embedded applications, and other products. DEG’s products include microprocessors and related chipsets and motherboards designed for the various computers mentioned. The growth in the mobile industry has affected this group's revenue generation, reducing the percentage contribution to the company as a whole.[10]
Mobility Group
This group manufactures and produces processors for notebook computers and all other mobile devices. Recently the mobility group has been increasing its percentage of total revenue.[11]
Others
Digital Health Group
Focused on providing technology for all aspects of the health care field. While no specific products have come out of this division to date, their goal is integrate technology into health care research, diagnostics and productivity, and personal health care.
Digital Home Group
Makes Intel products available around the world to third party distributors, dealers, system integrators and solution providers. Furthermore, this group designs products to meet local needs around the world.
NAND Solutions Group
Produces all of Intel's flash memory products for both embedded and wireless markets. This group includes the NAND flash memory products that are produced in Intel's joint venture with Micron. This joint venture has launched a high speed NAND flash memory technology that supposedly is five times faster than conventional NAND.
| Years | 2008 | 2007 | 2006 |
| DEG[9] | 55% | 56% | 58% |
| MG[9] | 42% | 38% | 35% |
| Others[9] | 3% | 6% | 7% |
| Total Revenue[9] | $37,586 | $38,334 | $35,382 |
R&D Model
Intel's current development model, known as the "tic toc model", calls for the introduction of a new process technology every odd year, then a move towards a new architecture during each even year. This model can be seen with Intel's introduction of their core architecture in 2006 on 65nm process technology, which has now transitioned into 45nm process technology (introduced in 2008). The company is currently developing 32nm process technology, which they expect to use for manufacture of products in second half of 2009.[12]
Trends and Forces
Semiconductor Cyclicality
The semiconductor industry is deeply cyclical. Demand in up cycles is so high that chip manufacturers have trouble keeping up. Similarly, if electronic sales, particularly PC sales, are slow, demand for chips can plummet. The fact that the semiconductor industry is more subject to the whim of consumer demand more than corporate demand, also adds to the overall volatility. The backdrop of this high market volatility, however, has been continual growth. Over the last 20 years the semiconductor industry has seen about a 13% average annual growth rate.
Semiconductor sales have shown about an 80% correlation with GDP growth trends, meaning a downturn in GDP growth could very likely be accompanied by a downturn in semiconductor sales.
Cost-Minimizatin Efforts
In September 2006 Intel released restructuring plans that, have proved effective and significantly cut costs of production. These plans included reducing headcount by about 20,000 people since 2006, along with divestitures of non-strategic businesses like the NOR flash memory business.[13]
Innovation Focus
Intel spends significantly more on research and design than AMD in an effort to remain on the cutting edge of the technology field. Intel has introduced the world's first 45nm microprocessor which boasts smaller size and greater power than the previous 65nm microprocessors. Making the transition to 45nm has been extremely successful for Intel and they are now poised to transition to 32nm technology microprocessors.
Intel's innovative approach has also led to investments outside of the United States. On Tuesday, October 28 2008, Intel announced its first "clean-tech" initiative in China, a $20 million equity investment in Trony Solar Holdings Co., one of China's biggest makers of solar energy and wind power equipment.[14]
Trying to Enter the Mobile Phone Market
Intel unvelied its Atom microprocessor in April, 2008 as the company anticipated the launch of mobile internet devices from some PC makers. However, Intel now plans to use the second generation of the chip, expected to release in 2009, for smart phones. There is a growing trend of mobile phones with internet access such as the iPhone and the BlackBerry.
Intel plans to use its atom microprocessors as well as the 4G service WiMax, to enter into this expanding business. Intel will use the WiMax network that is being built through a seven company joint venture headed by Sprint and Clearwire. In the 4th quarter of 2008, Intel made a $1.0 B investment in Clearwire (CLWR). [13] Intel has tried to make a move into the mobile phone market before with its XScale division, but ended up selling it off in 2006.[15]
Antitrust Investigations
Intel has been involved in a variety of anti-trust litigations. The European Commision was the latest goverment body that found Intel to be violating anti-trust laws and fined the company nearly $1.45 B on May 15th 2009. The Korean Fair Trade Commission has already fined Intel $25M after finding that Intel gave out $37 M in rebates to Samsung Electronics and Trigem Company in return for promising not to buy microprocessors from AMD. Intel contested that they do not give out rebates, but rather offer volume based discounts.[16]
Competition
Intel is a large corporation with multiple divisions that compete with a variety of companies for customers. The table below highlights the major competitors identified for each division.
| Microprocessors[17] | |
| Desktop | AMD |
| VIA | |
| Mobile | AMD |
| VIA | |
| Enterprise | AMD |
| IBM | |
| Sun Microsystems (Now Oracle) | |
| Embedded | AMD |
| VIA | |
| Freescale Semiconductor,Inc. | |
| Chipsets[18] | |
| AMD | |
| NVIDIA | |
| VIA | |
| Flash Memory[18] | |
| Hynix Semiconductor Inc. | |
| Micron | |
| Samsung Electronics Co. Ltd. | |
| SanDisk Corp. | |
| Spansion Inc., | |
| Toshiba | |
| Connectivity[18] | |
| Atheros Communications, Inc. | |
| Broadcom | |
| QUALCOMM | |
The microprocessor industry is essentially evolving into an unbalanced duopoly. Intel competes directly with Advanced Micro Devices (AMD). While Intel still enjoys a significant advantage in market share, AMD has been gaining ground in the industry.
References
- ↑ AMD narrows market share gap with Intel, revenue gap grows (07-02-2008). Retrieved on 2009-06-03.
- ↑ AMD 2008 10-K pg. 45
- ↑ 3.0 3.1 3.2 3.3 3.4 3.5 3.6 INTC 2008 10-K pg. 26
- ↑ Giz Explains: Why Intel's Core i7 Processor Is a Beautiful Monster (11-26-2008). Retrieved on 2009-06-03.
- ↑ AMD completes 45-nm processor, but quad-core Opterons still delayed (03-04-2008). Retrieved on 2009-06-03.
- ↑ Intel Reports Second Quarter Earnings. Intel, Inc. (2009-07-14). Retrieved on 07-23-2009.
- ↑ Intel Delivers Industry's First 34-Nanometer NAND Flash Solid-State Drives; Advancement Lowers Prices by Up to 60 Percent. Intel,Inc. (2009-07-14). Retrieved on 07-23-2009.
- ↑ INTC 2008 10-K pg. 27
- ↑ 9.0 9.1 9.2 9.3 9.4 INTC 2008 10-K pg. 3
- ↑ INTC 2008 10-K pg. 4
- ↑ INTC 2008 10-K pg. 6
- ↑ INTC 2008 10-K pg. 8
- ↑ 13.0 13.1 INTC 2008 10-K pg. 28
- ↑ http://www.usatoday.com/tech/science/environment/2008-10-28-intel-solar_N.htm?csp=34
- ↑ Intel to Re-enter the Mobile Phone Market.
- ↑ Intel Said to Face Antitrust Legislation. NY Times (2008-06-07). Retrieved on 06-28-2009.
- ↑ INTC 2008 10-K pg. 11
- ↑ 18.0 18.1 18.2 INTC 2008 10-K pg. 12
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