Is Intel really top dog in communications chips?
By Darrell Dunn
EBN
(06/10/02 10:40 a.m. EST)
After entering the communications IC market just three years ago, Intel Corp. has arguably emerged as the dominant supplier, surpassing established players that suffered severe revenue erosion last year.
A study of communications IC market leaders by Gartner Dataquest provides some validation for Intel's strong communications push of the past few years, but analysts and competitors last week questioned its significance.
The general-purpose and application-specific communications IC market plummeted in 2001, to $40 billion from nearly $65 billion in 2000, according to the Dataquest report. During that time, Intel, Santa Clara, Calif., was able to jump from the third-largest player in 2000 to the top position even as its revenue dropped to $2.7 billion from $3.5 billion.
Texas Instruments Inc., Dallas, maintained the No. 2 position, with revenue of $2.4 billion, compared with $3.7 billion in 2000. Motorola Inc.'s Semiconductor Products Sector, Austin, Texas, suffered perhaps the largest revenue loss, dropping nearly 50%, to $2.2 billion, and slipping from first to third in the rankings.
“All of our businesses were impacted like everybody else,” said Sean Maloney, executive vice president and general manager of Intel's Communications Group, at SuperComm last week. “In aggregate, we carried on the momentum of building the business. A year and a bit ago we were a company that was partly making networking systems equipment and partly making components. Now there's a hardcore focus on components and the biggest R&D in the communications industry. I wasn't expecting to get [to first] for a couple of more years, but the fact we got there early is great.”
Flash in the pan?
“They can say they are number one in communications, but the communications market doesn't know it yet,” said Will Strauss, an analyst at Forward Concepts Co., Tempe, Ariz. “They still don't have credibility. ... It's a flawed view. I don't know of anyone who considers flash a communications chip. They have plenty of money and want to be someone in the market. They will get there, but they aren't there yet.”
Jeremey Donovan, an analyst at Gartner Dataquest in Chicago, who prepared the communications IC market results, said that, historically, a company with a strong general-purpose semiconductor portfolio has secured the leadership position. Previously, Motorola led with embedded processors, and last year Intel did with flash.
“When a lot of people think about communications ICs, they think about application-specific devices like PHYs and framers where companies like PMC-Sierra, Broadcom, and others are doing well,” Donovan said. “That's also an area where Intel wants to become stronger. They've been progressing up the rankings a little each year, but their real strength in the past year was flash.”
All-around player
Maloney counters that while flash remains the bulk of its communications IC sales, Intel has made significant progress in network processors, optical components, and Gigabit Ethernet devices. According to Gartner Dataquest, Intel led in network processors with revenue of $25 million, up from $12 million in 2000, was third in Gigabit Ethernet ICs with $12 million, and entered the optical module rankings at 18th with $10 million in revenue.
But while increasing its stature in the communications market, the business currently remains a loss leader for Intel, which has lost hundreds of millions of dollars on a P&L basis and absorbed billions of dollars in R&D and M&A costs.
“At this point, it's really hard to get excited about it because it has so little impact on the bottom line for the company. Revenues for Intel are still around 80/20 PC to communications, and most of that revenue is flash,” said Dan Scovel, an analyst at Needham & Co. Inc. in New York.
Maloney believes Intel's commitment to becoming a communications player will eventually pay signifi-cant dividends despite the market doldrums.
“Anyone today who says the communications market is finished is just as mistaken as those in 2000 who said petshop.com was where to put your money,” he said. “We started as a memory company and invested heavily in microprocessors. What happened there? It comes down to whether you believe long-term there is a market, and if you can structure to win it.
“There is a market and it will bounce back,” Maloney said. “People want to be connected always, everywhere. We're getting back to our roots: make the most advanced components on the most advanced process and out-R&D the other guys.”
Market competitors could also find some good news in the results. TI moved from third to first in application-specific ICs. Motorola was first in communications processors. Agere was No. 1 overall, when optical components were added in, and first in switch ICs. PMC-Sierra was first in application-specific ICs for ATM. Applied Micro Circuits was first in application-specific ICs for Sonet/SDH.
“I think TI or Agere have a better overall claim to communications IC leadership. But if you define your parameters right, you can be number one in anything,” Strauss said. |
