XScale

Where Can Intel Find Growth?

XScaleJean-Louis Gassée, a veteran executive, investor, and observer of the tech industry, wrote an accurate and depressing account on the position of once high-flying Intel. Like Microsoft, Intel was unable to to keep up with a rapidly changing world where the kings of PCs were being overrun by small, lightweight, mobile equipment.

The question is, how did Intel get into this mess and how does it get out? One thing to remember is Intel, again like Microsoft, has lots of problems but is not in dire straits. Its revenue and profits have both fallen slightly over the past three years but nothing in danger of putting it out of business. The server market, for which it owns the processor business, is strong and, while PC sales are weak, that business isn’t going away. But this can’t change the fact the market for Intel’s processors is far, far behind the demand for ARM designs in mobile devices.

Intel, of course, could be on top of the world of processors for everything from PCs to phones. In 1997, Intel agreed to acquire Digital Equipment’s StrongARM, a top-of-the-line ARM chip, to settle a legal dispute with DEC. The problem was that the x86 had all the real power within Intel. The x86 teams wanted to build smaller and cheaper chips of their own (of course, mobiles phones in those day did nothing but make phone calls).

Intel renamed the StrongARM XScale and it became a real contender as much more sophisticated mobile data devices, such as Palm, migrated into phones. But it never really counted as a central Intel product.

The classic test came along when Apple, which had already switched to Intel’s x86 for the Mac, expressed interest in XScale for the iPhone. But Apple drove a hard bargain. In an interview with The Atlantic, retiring Intel CEO Paul Otellini said:

At the end of the day, there was a chip that they were interested in that they wanted to pay a certain price for and not a nickel more and that price was below our forecasted cost. I couldn’t see it. It wasn’t one of these things you can make up on volume. And in hindsight, the forecasted cost was wrong and the volume was 100x what anyone thought.

Intel decided to leave the ARM business instead and sold the division to Marvell. Since then, it has been focusing exclusively on miniature x86 system-on-a-chip (SoC) for mobile devices but has failed to make a dent in a field dominated by the ARM products of Samsung, Apple, Qualcomm, Nvidia, and others.

Intel has been pushing its x86 Atom SoC for a while. It’s found a market for its Medfied, Merrified, and Moorfield systems on Windows and Android tablets and a variety of industrial products, but not very many phones. It has been able the shrink the SoCs ever smaller, but ARM has continued to stay ahead. Today Apple’s A7 processor, a Samsung-made SoC, is still substantially smaller at a die size of 102 square mm, compared to the 196 square mm Moorefield.

Intel is going to need a way to get into a phone device, and it seems unlikely to be x86. But Intel, unlike most of its competitors, is in the business of manufacturing its own chips and the drop in demand for PCs has left it with a significant amount of fabrication capacity.

It could get into the business of manufacturing chips for ARM designers. But while Apple would like to take its business away from Samsung, making iPhone chips would be a bitter move for Intel. Taking on the iPhone at its launch would have made Intel a successful partner for the decade’s most important product. But Apple has learned so much about chip design that Apple would be the leader and Intel just a hired fab operator.

To get back into real competition, Intel will probably have to find away to reverse the mistake of the XScale sale and get back into the ARM business. It would be a painful and expensive move, especially since there are no readily available ARM manufacturers on the market. But it may be Intel’s only way to find a growth market.

Published by

Steve Wildstrom

Steve Wildstrom is veteran technology reporter, writer, and analyst based in the Washington, D.C. area. He created and wrote BusinessWeek’s Technology & You column for 15 years. Since leaving BusinessWeek in the fall of 2009, he has written his own blog, Wildstrom on Tech and has contributed to corporate blogs, including those of Cisco and AMD and also consults for major technology companies.

4 thoughts on “Where Can Intel Find Growth?”

  1. Intel needs to move past X86 like Microsoft needs to move past Windows. But is either company smart enough to do it? Doubtful.

  2. As usual in these situations, Intel’s woes are entirely self-inflicted, due to the stupidity of “shareholder value” as the metric of what a corporation should or should not do..

    Intel used to be a diversified semiconductor company, with multiple sources of income. Then they made the fatal mistake of trying to please their shareholders by getting rid of their lowest-margin divisions. If you slice away the least profitable sectors of a company repeatedly, inevitably you’ll be left with just the one thing that is most profitable. At which point, pray that that one thing never becomes obsolete or superseded.

    They’ve been looking for the “next big thing” for a long time, but their decision making has been hampered by the need for whatever it is to be just as good as the 65% margin CPU business they already have. Surprise, there is nothing that will ever be as profitable as that CPU division. THe next big thing will inevitably be smaller than their current big thing. But that would mean lower margins and less returns to the shareholders, and that is Forbidden by the gods of wall street. Result: they are unable to find anything to diversify into.

  3. Isn’t it obvious what they should do? They need to buy Tesla and branch into social media.

    Oh, sorry. I thought you were talking about Apple.

Leave a Reply

Your email address will not be published. Required fields are marked *