Intel's changing future

After major product launches and reorganisation, Intel's profits still lack lustre. The market is moving: it must follow

The release of a new version of Windows used to be a licence to print money for Microsoft and the companies that nestle close to its corporate bosom. Of that lucky cabal, Intel used to be the number-one beneficiary of the Windows halo effect.

Five years ago, the chipmaker would have been readying itself for the inevitable hardware kick-backs from a new OS like Vista — let the good times roll. But the reality in 2007 is dramatically different. Rather than holding out its hands, Intel is on its back foot with its fists up. Vista isn't going to spark a huge appetite for new processors: more memory will be the order of the day.

That won't help Intel. Profits at the Santa Clara-based company were down by 39 percent for the fourth quarter, with net income down by almost $1bn. Coming after Intel's dramatic reorganisation, plus high-profile success with Apple and its launch of the Core architecture, these are not signs of a company regaining the plot.

The days of desktop clock speeds underpinning Intel's business are over. Premium processors are still selling well, the company claims, but the margins it used to enjoy have dropped. Intel's scale used to guarantee dominance over a relatively homogenous chip market. But now bulk threatens to impede its ability to compete in an infinitely more diverse arena. Intel's chief executive Paul Otellini admitted that in 2006, the company introduced a record 40 new chip products across its three main areas of PCs, notebooks and servers. As AMD has shown, nimbler companies can succeed in a fragmented market where the old empire has trouble maintaining its rule.

Intel still has the underlying power to drive the market. Its technology is unmatched, both in design and production, and its R&D teams continue to produce new options. New strategies are harder to come by — especially when margins are onion-skin thin. Platforms are good: cost-reduced platforms are better. The future looks like highly integrated systems on a chip, a path for which Intel has, at best, lukewarm feelings.

Intel has shown it has the prescience and courage to rip up the rule book and rebuild. But in an increasingly diverse and competitive environment, it must abandon memories of a comfortable past and stare the future in the face. The view may not be as pretty as before, but it's the only vista Intel has to look forward to.

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