Chuckles - Here's a nice article for you to read.
Analysis: Intel turns Webward as rivals falter
By Will Wade and Craig Matsumoto, EE Times
Jul 16, 1999 (5:01 PM)
URL: eetimes.com
SANTA CLARA, Calif. — Two of Intel Corp.'s competitors stumbled on the road to X86 gold this week, as the processor titan pulled smartly ahead on its next great frontier — building a communications business with its PC profits. In the first of two surprise public statements earlier this week, Advanced Micro Devices Inc. (AMD) announced a $162 million loss for its second quarter and the resignation of its president and chief operating officer, Atiq Raza, on the heels of the rollout of the Athlon (K7) processor he had championed. Then, Integrated Device Technology Inc. (IDT) said it would abandon its efforts to design and sell its WinChip clone X86 CPUs and that its longtime president, Len Perham, would step down. The announcements came just three weeks after National Semiconductor Corp. sold its Cyrix Corp. MPU unit to Via Technologies.
As its X86 rivals scrambled, Intel announced this week that it would split its emerging communications division into two groups, as it chases growth driven by the Internet. One will focus on new and existing businesses in hubs, telephony servers and network-interface cards; the other will aim to create the next leviathan in communications silicon. Then, the $26 billion giant struck a development deal for digital subscriber line products with router king Cisco Systems Inc. (San Jose, Calif.).
Intel's PC-processor foes have had a hard time matching both the speed of Intel's chips and the company's ability to profitably cut prices on them.
"If you're not Intel, it's pretty tough to sell [PC] microprocessors," said John Joseph, semiconductor analyst and managing director of Salomon Smith Barney in San Francisco.
Indeed, AMD and IDT have had trouble manufacturing devices that can compete with Intel in both cost and performance. IDT's WinChip line has never been known for speed, but the company hoped to compensate with lower prices. That strategy has not been successful, partly because Intel has pushed down prices for its Celeron line.
AMD has had trouble delivering a sufficient supply of its fastest parts, which has held revenue down. The company appears to have solved some of its manufacturing problems, but not in time to avoid a loss of $162 million in the second quarter. Those results do not include a one-time gain from selling off its programmable-logic division, Vantis Corp. Even more ominously, AMD has some two million of its K6 chips left on the shelves, and may be forced into a fire sale to push them into the channel.
AMD's chairman and chief executive officer, W.J. Sanders III, has frequently said that his business model demands an average selling price of at least $100, but AMD has consistently missed that target. Company executives confirmed this week that their average price has slid to $67. A spokesman said AMD will do whatever it takes to sell off the unsold parts, even if it continues to reduce the ASP.
A potentially bigger problem is the loss of Raza, who also served as AMD's chief technologist. Raza has been credited with solving some of AMD's longstanding manufacturing difficulties, and was a driving force in bringing the latest flagship product, the Athlon, to market. That device is getting high marks from early customers, and is now seen as the fastest microprocessor in the industry. With the high-powered Athlon poised to return AMD to profitability, this could have been a time for Raza to bask in success. Instead, he has opted to resign for "personal reasons," with no further explanation. "That is definitely going to be a big loss for AMD," said analyst Joseph.
Linley Gwennap, editorial director for the Microprocessor Report, praised Raza's accomplishments. "He got the K6 manufactured, he got the Athlon finished and out the door, and last quarter they produced more processors than in any previous quarter," Gwennap said.
In a conference call earlier this week, Sanders said AMD started manufacturing the Athlon in tens of thousands in the second quarter and was on track to ramp into production of a million units in the fourth quarter. But the company has been battered by cost cutting on Intel's low-end Celeron processors.
'Future hangs on K7'
"They essentially conceded they will see no more revenue or market share from the K6 family, so the future of the company hangs on the K7," said Paul Mansky, associate analyst with U.S. Bancorp Piper Jaffray (Minneapolis).
Raza's departure took many by surprise, both inside and outside AMD. However, Gwennap said the decision was preceded by conflict between Raza and his boss, Sanders. "He's had trouble fitting in there, and there have been a lot of conflicts between the two," he said. "Raza had trouble getting programs approved or budgets signed. If this happens too many times, a person can get tired of it."
This mirrors reports that Richard Forte, former head of Vantis, also butted heads with Sanders and was forced to leave. Forte has just been named president and chief executive officer of Integrated Telecom Express Inc. (Santa Clara, Calif.).
Yet Raza's departure should not derail the Athlon rollout, said Mike Feibus, principal of Mercury Research (Scottsdale, Ariz.). "My guess is this is something that came up quickly," he said. "I talked to Atiq a week ago and there was no hint of this. Even the people at high levels over there were surprised about this one."
IDT's top executive has also opted to move on, although Dave Cote, vice president of sales and marketing at the Santa Clara company, said Perham was not taking the fall for IDT's failure to turn a profit in the X86 market. After divesting the company's Centaur division, the MPU design team, IDT will focus instead on communications. Cote noted that every IDT product line except processors was profitable last quarter, and that all are related to the communications market.
"We really had two separate business focuses, and that just wasn't working for us," he said. "We had to decide that communications is where we're making money." Perham has been grooming his successor, Jerry Taylor, for some time. Taylor comes with an extensive background in communications.
"IDT has had difficulty keeping up in the performance race," said Nathan Brookwood, principal analyst for Insight64 (Saratoga, Calif.). Its fastest processor is the current WinChip2, running at 266 MHz. The upcoming WinChip3 uses the same core and even IDT concedes it will not be significantly faster.
Indeed, IDT's exit from the bloody X86 market is no surprise. The company said nine months ago it was seeking partners and took its latest product, the WinChip4, to an IBM foundry rather than a new IDT fab. "The body language had been out there for awhile," Feibus said.
IDT was also taking a beating in the market. It shipped only about 125,000 CPUs in its most recent quarter, Mercury estimates, down from about 200,000 in the previous quarter. Cote said 1998's final three months were the most successful quarter ever, when IDT shipped more than 300,000 WinChips, mostly to distributors for the upgrade market or to third- and fourth-tier OEMs for the developing markets in Asia.
IDT's troubles are not unlike those of National Semiconductor, which last month sold its Cyrix unit to Taiwanese chip-set vendor Via Technologies Inc. Like IDT, Cyrix couldn't keep pace with the speeds set by Intel's larger, better-tuned fabs. "It's a megahertz game," said Feibus, "and they were shipping 240-MHz parts in a market where your first number better be a 3 moving quickly to a 4."
Everybody in the processor market has been stung this year by Intel's repeated price cuts in the low end. But the company's recent financial report indicates that not even Intel can afford a long, drawn-out price war. Intel reported a healthy profit of 51 cents per share but landed just below Wall Street's expectations of 53 cents.
"Intel is definitely seeing a financial impact from its pricing strategies," said Gwennap. "I don't think they want to be in a position where their ASPs continue to fall, because that will further push down their revenue, and ultimately their stock price. They definitely can't afford to see this price war spread into their Pentium line." He estimates that Intel's ASP fell last quarter from $225 to $217.
As competitors stumble, Intel is stepping smartly into the future, with its decision to refocus its communications ventures.
Changes this past week highlighted the company's increasing attention to communications: Intel launched a networking-equipment division with direct access to chief executive Craig Barrett and teamed with Cisco Systems for development of DSL modems and chip sets.
The new Communications Products Group includes Intel's hub, switch and router businesses along with recently acquired Dialogic Corp. The group will be headed by vice president John Miner, formerly general manager of the enterprise systems group.
Intel's Network Communications Group remains intact under Mark Christensen. However, the group now takes on a charter of a communications components unit developing a network-processor strategy, bolstered by the planned acquisitions of Level One Communications and Softcom Microsystems.
Analysts, noting that the new division has Barrett's ear, said the reorganization is Intel's play to push into networking as its next profit center, as PC margins level off.
"Most people accept at this point that high-end PCs are no longer the holy grail for high-tech development," said Bob Merritt, an analyst with Semico Research Inc. "It's going to be interesting to watch this reinventing of Intel."
So far, Intel's presence hasn't affected the upper strata of the networking industry. Long a player in Ethernet, Intel has been relegated to the commodity end of the market, partly due to the importance of network-management and other software in high-end networks.
"They have channels up the wazoo, but no one's going to buy a $50,000 router from a Web warehouse today," said Byron Young, director of product marketing for Cabletron Systems Inc. (Santa Clara). "I'm sure at some point in the future we'll bump into Intel, but as of today, our competitors have been the normal competition."
The Level One acquisition is interesting in that it gives Intel a taste of the analog world, Merritt said. "This new direction suggests that over time, Intel doesn't want to be limited by digital things." That, he said, will mean "falling into the critical path of a lot of companies."
Indeed, with its PC competitors in a dither, Intel's only worry is that it will look more and more like a microprocessor monopoly to government regulators. Meanwhile, it is stepping smartly ahead in search of the next big thing. "Intel understands if they want to maintain strong profits and growth they have to step outside the PC arena," said Feibus.
— Additional reporting by Rick Merritt |
