Intel to Tout Chip Trifecta in Turnaround Bid

By John G. Spooner  |  Posted 2006-07-20

Intel to Tout Chip Trifecta in Turnaround Bid

PC buyers might soon find dual cores in nearly every PC as Intel works to create a second-half turnaround.

The chip maker, which suffered processor inventory and pricing woes that reduced its revenue and profit in the second quarter of 2006, is redrawing the lines that separate its PC processors and will now offer three processor brands.

It will also accelerate the arrival of its first quad-core processors to the end of 2006.

Following the July 27 arrival of its Core 2 or "Conroe" processor line, the chip maker will tout a good, better, best approach to PC buyers using its Celeron, Pentium and Core 2 chips.

The move, it believes, will make dual-core processors more widely available, offering PC buyers greater performance even at lower price points and perhaps stimulate the PC market. Greater uptake of dual-core chips would also help also help Intel to richen the mix of processors it sells, upping its revenue and profit figures.

"Our leadership with Core 2 Duo allows us to lower the price of Pentium … to system price points not previously addressed by this brand," Paul Otellini, Intels CEO, in Santa Clara, Calif., said in a conference call with reporters on July 19.

"We believe that these three brands combined with our lead in 65-nanometer [chip manufacturing] technology and capacity give Intel a unique competitive advantage. We will accelerate dual-core penetration in to more segments than ever before, giving Intel a compelling technology advantage at every price point," Otellini said.

Intel has also notified customers that it intends to keep adding more performance. It has moved up the introduction of its first quad-core desktop and server chips to the fourth quarter of 2006. The chips—which contain four processor cores each, as opposed to the one or two cores available in chips now—were originally planned for the first half of 2007. Intel has yet to say when the chips will arrive in systems, however.

The focus on offering more cores to customers comes as lower-than-expected selling prices—not unit shipments, which were basically as predicted—appear as the cause of Intels lower second-quarter financial results.

The company on July 19 reported revenue of $8 billion in revenue and 15 cents a share, a figure that topped analysts estimates.

However, the two figures were 13 percent and 60 percent lower, respectively, than Intels revenue and earnings per share in the second quarter of 2005.

"The introduction of Intro of Core 2 Duo allowed us to reset our entire processor lineup," in terms of price and positioning, said Paul Otellini, Intels CEO, in a conference call with analysts.

Click here to read about arrival of "Montecito," Intels first dual-core Itanium 2 chip.

Intel will offer its entire Core 2 Duo desktop lineup for under $600, prices that are considered to be relatively low, at the outset.

It has also said it would cut dual-core Pentium D prices, allowing the Pentium D and other Pentiums to be offered in much lower-priced machines than they are today.

Intels Celeron line will continue to address the least-expensive PCs. But the company believes that the combination of Core 2 and Pentium will be the one-two punch it needs.

"Technology and good products tend to be the overarching drivers of success in our industry," Otellini said.

"At the end of the day, our job is to build the very best products. Great new products often ignite markets. You saw that with Centrino [in notebook PCs] With this new class of [Core 2] products, we can perhaps lift the whole market."

Intel will concentrate the bulk of its marketing and channel sales efforts on Core 2. Otellini said it had shifted its advertising and marketing toward the chip line. Core 2 desktop chips will be widely available on its July 27 launch date in both systems and in the reseller channel, Otellini said.

"We believe we can satisfy demand for both of those products," Otellini said, referring to Core 2 for desktops and notebooks.

"At launch youll see Conroe stocked in the channel. This one is being done as broadly as we know how to do it."

Intel will also offer a Core 2 Duo notebook processor, dubbed "Merom." That chip, which it says shipping to PC makers at the moment, will presumably be announced on July 27 as well. Intel has not yet offered the exact dates on which it will appear in PCs.

It appears to be counting on PC makers to market its dual-core Pentium D, which is right now only seen in consumer PCs that start between the $500 and $600 mark, to lower-price echelons.

Yet, despite their optimism, Intel executives say they will have a tough road ahead. PC sales are slowing from post-economic downturn highs and competition from Advanced Micro Devices—at least in part responsible along with an inventory overhang for Intels lower processor second quarter average selling prices—remains stiff.

For its part, AMD has vowed to match Intels planned July 23 price cuts. AMDs match will allow the smaller chip maker to retain desktop PC price performance leadership, the company has said.

Next Page: Athlon, Opteron.

Athlon, Opteron

The chip maker has also introduced new Athlon 64 X2 models and will roll out a new Opteron in early August.

Meanwhile, despite saying they were comfortable with a rise in their in-house processor inventory, which consists of several hundred million dollars worth of extra chip sets and Core 2 and Pentium D processors, Intel could be harmed by the extra supplies should an unexpected economic downturn arise, Intel CFO Andy Bryant said.

Intel is expecting a second half thats in-line with seasonal trends. Thus it expects third-quarter revenue to rise about 7.5 percent, a figure thats within norms for the quarter.

It did not offer a fourth-quarter forecast, however. Calling the third quarter can be tricky as PC makers dont always order processors until the last minute, trying to get a better read on fourth-quarter sales.

Meanwhile, more layoffs may still be in the offing at the chip maker. Intel is now about half way through an exhaustive internal review, designed to increase its efficiency, Otellini said.

The efficiency review began in April and has so far resulted in a small number of layoffs.

Intel cut about 1,000 management positions on the morning of July 13.

It also arrived at an agreement sell its XScale application processor line to Marvell Technology Group. Intel will shed 1,400 employees in the deal, most of whom are expected to move to Marvell.

Intel believes that attrition combined with the July 13 cuts and the XScale sale will reduce its headcount, which was about 103,000 in the first quarter, to below 100,000. But more cuts could come.

"On what weve done today, Ill get below 100,000," Bryant said. However, "We may have actions that will take it even lower before the end of the year."

Intel, which has been under pressure from AMD, intends for the cuts to remove extra management layers and thus improve its internal communications and decision-making capabilities, making it more competitive, Otellini said in a memo to company staff, obtained by eWEEK.

Click here to read the full text of Otellinis memo.

Thanks to the review, "We have a tight handle on spending and are making good progress on identifying ways to improve our efficiency…for the long term," Otellini said.

In addition, Intel is aiming to ratchet up the overall speed with which it moves. Aside from rolling out produce like the Core 2 ahead of schedule, it plans to shift much more quickly to new processor architectures, redesigning the circuitry that underpins its PC and server chips every two years, for example.

By adopting new architectures—themselves simplified to allow more elements to be reused—on this schedule, Intel said it believes it can rapidly drive up its chip performance, while continuing to keep power consumption under control.

Editors Note: This story was updated to include additional information and comments from Intels July 19 earnings conference call with analysts.

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