Intel Eyes New Business Plan

By John G. Spooner  |  Posted 2006-04-27

Intel Eyes New Business Plan

Mea culpa, Intel. Executives at the chip maker, in taking responsibility for the companys poor performance of late, are making some changes.

Intel CEO Paul Otellini, speaking at the companys annual financial analysts meeting in New York on April 27, hinted that the chip maker may reduce its 100,000-employee work force and jettison underperforming businesses between now and roughly the end of 2007, in addition to speeding up product launches, as it seeks to become more nimble.

The chip maker, which suffered a difficult 2005, during which it lost market share to its rival Advanced Micro Devices, is responding in several ways.

First, it has begun a broad self-evaluation. The plan, announced on April 19 but begun before that, will look at all of its businesses and ultimately lead to the restructuring and work force changes hinted at by Otellini.

The actions will come in addition to efforts to refresh its product line more often—in the short term, it will roll out a new crop of chips as quickly as possible and in the long term will reduce the time between chip architecture redesigns from four years to six years to two years. Intel will also be cutting budgets for 2006 spending areas, such as marketing, to the tune of about $1 billion as well as reducing capital expenditures, which are mainly for manufacturing.

Click here to read more about what Intel is doing to rebound after its recent lackluster performances.

"The result of this … is that youll see a leaner, more agile and more efficient company," Otellini said. "No stone will be left unturned."

The review, which comes after Intel reported lackluster first quarter 2006 financials and cut its revenue outlook for the year due to excess inventory, will look at every business.

The exact results of the review wont be known until the action, scheduled to be completed within the next 90 days, is over. However, as Intel identifies areas that could be improved, it will take immediate actions, Otellini said.

Still, "in my mind, it would be way too simplistic to simply do a reduction in force," Otellini said. "We dont go into this knowing the answer. We dont have a specific goal in mind."

Thus Otellini, although he mentioned right-sizing the company—generally a euphemism for staff reductions of some sort—gave no specific information about job cuts.

Instead, he said Intel has a definite set of broad goals moving forward, in addition to looking at its businesses. One of them involves regaining its lost market-share. To do so, the company intends to accelerate the delivery of its Core Architecture chips—chips based on a new architecture design, which Intel believes will give it an advantage in performance and power consumption versus AMD—and move from 90-nanometer to 65-nanometer production as quickly as possible, this year.

Intel will start by rolling out its Core Architecture-based, dual-core Woodcrest server chip, originally expected in the third quarter, in June. It will follow with its Conroe desktop chip in July and its Merom notebook chip in August.

The three dual-core chips are expected to run in roughly the 2GHz to 3GHz range and, Intel has said, will offer double-digit performance gains versus its current products.

Next Page: Quicker delivery of chips.

Quicker Delivery of Chips

Conroe, which will become the heart of Intels new vPro business desktop platforms, and Woodcrest, for servers, also promise double-digit reductions in power consumption, addressing business concerns about data center power.

Admitting that Intel kept Netburst, the architecture behind its speed-fueled Pentium 4, around for too long, Otellini said Intel has also moved to ensure that it will roll out new chips more quickly in the future.

It will align the arrival of new chip architecture designs, which will spawn new generations of its PC and server chips, with its manufacturing process technology upgrades, so that the two will arrive together, once every two years.

The decision marks a significant change in that Intel will roll out all new products lines more often, cutting down on the potential that they might stagnate. Netburst, for its part, has been the basis of its desktop and server chips since late in 2000.

Otellini, for the first time, offered code-names for Intels forthcoming chip architectures. Nehalem will arrive in 2008, along with 45-nanometer manufacturing, while Gesher will come in 2010 with 32-nanometer manufacturing.

Intels vPro desktop PCs will proactively combat malware. Click here to read more.

It will intersperse the new architectures with updates known as shrinks. Shrinks will allow Core Microarchitecture, which was introduced with the 65-nanometer manufacturing processor, to transition to 45 nanometers in a shrink it has called Penryn.

The nanometer figures refer to the size of the features inside a chip, which are generally made smaller with each transition, allowing a chip maker to add more transistors. Generally, increasing transistor counts once meant higher clock speeds. But, in the future, it will allow for increases in the number of processor cores a given chip can contain.

Intel will also use its resources around the work to target new markets. The company believes that emerging markets, where PC penetration is low, and the UMPC (ultramobile PC) offer the potential for substantial growth in the future.

The company has been working on sub-$400 PCs for so-called emerging markets as well as creating a chip roadmap for UMPCs. The first such device will arrive in the United States next week with the May 1 launch of Samsungs Q1, which uses a low-power Intel processor.

Where Intel intends to make businesses like its Digital Enterprise Group, which is responsible for desktop and server platforms, more nimble by delivering new products more quickly, it "will deal with our nonperforming businesses" as well, Otellini said.

Later, in a question and answer session, he said that it will look closely at "anything with a bracket on it," referring to company earnings reports which show losses in parentheses.

The company will also evaluate its capital expenditures, its per-unit manufacturing costs, and will take stock of employee productivity in all areas, Otellini said.

"I can tell you in this project that you have the full commitment of the Intel management team to make Intel a different kind of company," Otellini said.

Otellini said that Intels current plan is to offer more details on the results of its review with its third-quarter earnings report. The results of the evaluation arent likely to fully unfold until 2007, he said.

Editors Note: This story was updated to include more information and comments from Intel about its new business plan.

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