Intel (INTC)

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See all 8 Bulls Reasons Bulls: Reasons To Buy Intel Reports Solid 1st Quarter 08 Earnings 100% agree Intel Reports Solid 1st Quarter 08 Earnings Earnings season got underway for real with Intel’s (INTC) report after the close on April 15th 2008. They reported $9.7 billion in revenues, a 9% increase compared to the year ago period, and earnings of 25 cents per share - both in line with analyst expectations. Their... read more View or Edit Reason 21 votes 100% agree Intel's reputation is trusted in the IT industry 100% agree Intel's reputation is trusted in the IT industry Intel's reputation is trusted in the IT industry. It has been a reliable company for PC makers and the PC market for years. View or Edit Reason 2 votes 100% agree Intel still leads the industry 100% agree Intel still leads the industry Intel spends more on research and design than any other company in the industry. This large investment is likely to continue yielding cutting-edge products that define the industry standards. View or Edit Reason 2 votes 100% agree See all 4 Bears Reasons Bears: Reasons To Sell High fixed costs and volatile demand is a bad combo 100% agree High fixed costs and volatile demand is a bad combo Due to the significant fixed costs in the industry and the somewhat volatile demand for their products (due to product cycles and general market swings) Intel may see periods, in both the short- and long-run, of significant revenue decreases. This may result from quick changes in... read more View or Edit Reason 1 votes 100% agree Competition from AMD 0% agree Competition from AMD As the products produced by Intel and AMD become increasingly similar in technology and design, Intel may see a decreasing margins over their competitor. View or Edit Reason 0 votes 0% agree Pressure from AMD 0% agree Pressure from AMD The pricing war that began with AMD is not over. Despite cooling from a heated battle in 2006 and part of 2007, margins still suffer from competition. Intel's performance in the 90s was strongly related to the lack of competition it faced. Since AMD released its K6 processors... read more View or Edit Reason 1 votes 0% agree Send the authors a comment or suggestion Be the first to make a suggestion See All Suggestions

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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). While Intel still holds the majority market share AMD has seen major gains over the last decade.

With the release of a new product line in late 2006 and early 2007 Intel has re-established its technological lead over the AMD. Its new technology (advancing from 65nm process technology to 45nm process technology) is roughly six months ahead of AMD's in terms of product cycle. Intel has also released its new Centrino 2 processor that was previously codenamed "Montevina". The processor is aimed at enabling greater work capacity, wireless performance, and battery life.

[edit] History

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.

[edit] Business Segments

• Flash Memory 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.
• Digital Enterprise Group: Produces all of Intel's products related to traditional servers and computers (both commercial- and consumer-level). Lately with growth in the mobile technology industry the digital enterprise group has been falling in the percentage of revenue that it creates for Intel.
• Digital Home Group: Produces Intel's media center type PC products. Digital home accounts for a very small percentage of Intel's revenue and is grouped into the "all other" section when revenue is broken down into groups.
• Mobility Group: Produces processors for notebook computers and all other mobile devices. Recently the mobility group has been increasing its percentage of total revenue.
• 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.
• Channel Products 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.
• 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.

[edit] Process Technology and Architecture

• Process Technology: Process technology refers to the technology that is involved in creating microprocessors. AMD's 65nm process technology is considered to be superior to that of Intel, but recently Intel went further when it announced its new 45nm process technology. Intel is now beginning the transition of replacing their 65nm processors with the more superior 45nm processors. These numbers (65nm, 45nm) refer to the thickness of the insulation on the transistors inside the microprocessors. With thinner insulation (that is still effective) the density of circuits on a processor can be increased. As a result, processors can be made both smaller and more powerful.
• Architecture: Currently Intel uses what is known as "multi-core" architecture for its processors. Essentially architecture refers to the design of the chip. How the chip functions depends on its architecture and generally changes in architectural design are attempt to create more efficient, or more powerful processors.

[edit] Performance Metrics

Microprocessors are rated on a number of characteristics that measure their performance. These measurements are the most important factors for determining the success of a specific line of products and as such are the focusing points for creators of these chips. Some lines of chips will focus more on one factor than another in an attempt to predict what the market prefers (i.e. faster chips, or more energy efficient chips, etc.)

• Clock Speed: Microprocessor speed is an important indicator of how powerful the product is. In this ultra-competitive industry Intel and AMD compete to produce faster processors, even if the difference is very minimal. While clock speed is not the only performance factor that determines how good a processor is, it certainly plays a significant role.
• Power Usage: On top of clock speed, Intel and AMD compete to make fast processors that use less power. Processors that can provide the same computing power while using less energy are more efficient and more valuable.
• Performance Per Watt: This measures the computing power of a microprocessor for a single watt of energy. In 2005, this metric proved to be a very important characteristic of server processors. AMD's performance-per-watt focused processor was more appealing to the server market than Intel's clock speed focused processor because of the significant difference in power usage (and thus electricity bills.) As a result, AMD saw an 18.5% jump in the server market share between 1Q05 and 2Q06.

[edit] Products & Customers

Intel's product line is made up of many different computing components including microprocessors, flash memory, motherboards, wired and wireless connectivity products, communications infrastructure components, and products for networked storage. Intel has released its latest line of processors, called the Cloverton processor. The Cloverton is a quad-core processor, a jump in microprocessing technology that is about six months ahead of AMD's technology. Intel expects its new quad-core processors to make up 75% of its server mix by the end of 2007.

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.

[edit] Competition, antitrust and espionage

Template:See also Two factors combined to end this dominance: the slowing of PC demand growth beginning in 2000 and the rise of the low cost PC. By the end of the 1990s, microprocessor performance had outstripped software demand for that CPU power. Aside from high-end server systems and software, demand for which dropped with the end of the "dot-com bubble", consumer systems ran effectively on increasingly low-cost systems after 2000. Intel's strategy of producing ever-more-powerful processors and obsoleting their predecessors stumbled, leaving an opportunity for rapid gains by competitors, notably AMD. This in turn lowered the profitability of the processor line and ended an era of unprecedented dominance of the PC hardware by Intel.^{[citation needed]}

[edit] Trends and Forces

[edit] 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.

[edit] Declining Computer Demand

The growth of demand for personal computers has slowed since the 1990s. As a result, Intel's growth has slowed as well. The demand for the products that use Intel's microprocessors is very much a determinant of Intel's success. Unfortunately this factor is out of Intel's control. Continuing to increase the productivity and applications of their products through research and design is necessary for Intel to remain on top of the microprocessor industry.

[edit] Cost-Minimizatin Efforts

In September 2006 Intel released restructuring plans that, if effective, would significantly cut costs of production. The effect of these efforts have begun to be realized in 2007 third quarter earnings with a 23% increase of gross margin from third quarter 2006.

[edit] 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 could face execution difficulties such as product defects.

[edit] 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. An analyst from FTN Midwest, also noted that the Atom processor is believed to be the chip that will be used in the next iPhone (the one after the new 3G iPhone).^[1] 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. 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.^[2]

[edit] Antitrust Investigations

An official investigation of Intel concerning possible antitrust violations has been undertaken by the Federal Trade Commision. The investigation will look specifically into whether or not Intel has practiced anticompetitive conduct. AMD stated that they believe that Intel gives rebates to some of the larger PC makers that allows the PC makers to purchase Intel's processors below production cost. The Korean Fair Trade Commission agrees with this claim as they 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.^[3]

[edit] Competition

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. AMD is one of the main focuses for Intel in 2007. They're agenda hopes to pressure AMD into a retreat, then subsequently generate significant growth in 2008 with innovative product releases. Intel views AMD's current spending (which is very high) as irrational and unsustainable. This strategy has led AMD to cut prices and lose ground in market share for 2007. Below are the recent breakdowns for market shares among the different divisions of the microprocessing industry.

Intel's release of new products in 2006 and into early 2007 has shown advances on technology that AMD has not yet been able to achieve. The release of the quad-core processors for the mainstream has raised the bar for performance in the industry. Intel has also made breakthroughs in microprocessing technology with the release of its 45nm process technology, an advance where AMD is lagging. The second half of 2006 and early parts of 2007 were periods in which Intel improved its position as the leader in the microprocessing industry. However, Intel has had a couple of missteps in early 2008 which could help out AMD. Intel's next generation Centrino processor had a problem with FCC certification which will delay its availability in the US. In addition, there are issues with the graphics in Intel's Montevina notebook platform. AMD is capitalizing on Intel's graphics issues with its new notebook platform known as Puma. The platform features unviversal compatibility, from low end to high end notebooks. It also boasts high end graphics that Intel's platform does not deliver.^[4]

In the Graphics industry, the major competitors are Nvidia and AMD (ATI). These competitors are striving to break into the mainstream computation market, currently satisfied by Intel and AMD's CPUs by facilitating the use of their graphical processor units (GPUs) for use in some non-graphical tasks. They are particularly effective in tasks which can be performed in parallel. However programming tasks to be processed in a parallel manner is non-intuitive to the traditional programmer, so is proving difficult to gain momentum. Nonetheless, the impressive price/performance advantages such 'mis-use' of GPUs provide may cause some concern to Intel in some specialist sectors in the next couple of years.

[edit] References

1. ↑ Inte's Atom Chip to Power Future iPhone
2. ↑ Intel to Re-enter the Mobile Phone Market
3. ↑ Intel Said to Face Antitrust Legislation
4. ↑ AMD Shakes PC Notebook Status Quo