Mannerisms

Intel’s diversification into NAND flash is going to be interesting. It says it’s bringing up its first part, a 4Gbit memory, in three different 300mm fabs and is currently outputting samples. That sounds like a triple-risk, triple-expensive sledgehammer to crack a nut.

Intel says it will add a new fab every year for NAND, which seems excessive when Samsung, Sandisk/Toshiba and STMicroelectronics/SanDisk are all either building or bringing up 300mm fabs for NAND flash, when prices fell over 60 per cent this year and when analysts predict further price erosion next year.

“There’s going to be an almighty collapse in the NAND market”, says Andrew Norwood, senior analyst at Gartner Dataquest.

It will also be interesting in the light of Intel’s previous failures at diversification i.e: two attempts at consumer electronics; two attempts at ASICs, and one attempt each at video-conferencing, programmable logic and chips for mobile phones.

Intel has developed in quite distinct phases. Under Noyce and Moore it was the most admired chip company; under Grove it became the most feared; under Barrett, it diversified; under Otellini, it appears to be faltering, if this year is any measure of what is to come.

In April it forecast a Q2 sales decline - its first forecast of a quarterly decline in five years. In June, it said profits could fall 23 per cent this year and it sold its mobile phone chip division to Marvell for $600m.

In July, Intel made four announcements: a 57 per cent drop in Q2 profits; the lay-off of 1,000 managers; that it might not make its four year forecast; a 21 per cent rise in unsold chips.

In August Intel sold its media and signalling business. In September, 10,500 lay-offs were announced. In October the Q3 results saw revenues grow by 9 per cent, but margins and prices slip. Inventory reached $4.5bn.

Of all these moves, the most depressing for Intel was its withdrawal from the mobile communications market.

It was a major attempt at diversification followed by Intel’s realisation that it couldn’t hack it.

To many people the reason was obvious. Intel’s behaviour in the PC market means that other markets are barred to it.

“The mere fact of Intel’s domination of PC markets is why doors are closed to Intel when it looks elsewhere”, says Jim Tully, vice president at Gartner Dataquest, “people are very nervous about letting Intel extend its reach into other areas.”

“The Wintel experience left people very wary”, agrees Malcolm Penn, CEO of UK analysts Future Horizons, “it’s hard to see how that could ever be allowed to happen again.”

“The whole cellphone industry is paranoid about the Wintel thing,” concurs Stephen Entwistle, vice president at Strategy Analytics.

Meanwhile, heavyweight telecoms chips suppliers like NEC, Qualcomm, Texas Instruments, Freescale, STMicroelectronics, Infineon, Renesas and Agere were strong enough to see off Intel.

This is bad news for Intel. If it can’t diversify, it is stuck in the fast-commoditising PC industry with an increasingly feisty and effective competitor.