SAN FRANCISCO The world's largest semiconductor company is stuck between a rock and a hard place.
Its core computer business is maturing, and its new businesses in communications are generating losses instead of hoped-for growth. Some of those new businesses are so woven into the company's fabric that it will not be easy, or maybe even possible, to dispose of them.
Welcome to Paul Otellini's world. The recently installed chief executive of Intel Corp. has said he will erase $1 billion in expenses from the company's books, eliminating loss-making groups to focus on Intel's traditional X86 computing business.
In this environment, Intel is shopping its Xscale processor, which serves communications systems ranging from cell phones to Internet routers, according to a recent report in the San Jose Mercury News. However, several analysts pan such a move as unworkable and not in Intel's best interests.
Others have speculated Intel may be planning to sell its flash business after a reorganization that put all the elements of the group in a tidy business unit. Still other reports have emerged that Intel may sell or kill any number of marginal units, including its Dialogic group.
Clearly, no one knows just what Intel will do. Likely Otellini himself has not yet made up his mind on the sweeping reorg he has suggested will be announced in July or August.
Here are some suggestions for the embattled executive culled from our editors and from top analysts who have tracked the company for many years:
• Sell or spin off the flash unit.
• Retain Xscale, but reorganize it into an embedded division under new management that cultivates a new culture.
• Transition out of Itanium as soon as possible, replacing it with multicore, multithreaded X86 CPUs.
• Revamp the fab strategy to em- brace foundry partners that would co-develop process technology and share capacity requirements.
Perhaps the easiest part of a reorg along these lines would be selling or spinning off the NOR flash unit. The 2005 spinout of Spansion by Advanced Micro Devices Inc. was a highlight of an otherwise lackluster year in high-tech stocks. Intel could do worse than follow AMD's lead.
The flash business has standalone products, fabs and road maps--and its losses are currently increasing under Intel management. "There's no reason for them to be in this anymore," said a contrarian Wall Street analyst who asked not to be identified.
Once upon a time, Intel made flash in its N–1-node fabs as a way to amortize capital expenses. But those logic fabs now use copper interconnects, 300-mm wafers and other technologies flash doesn't need. "There's no manufacturing synergy anymore," said the Wall Streeter, and only a small sales opportunity in bundling flash with other products.
Intel recently consolidated its NOR fabrication operations, previously managed by the logic technology and manufacturing group, into a single flash operation. That gave rise to speculation that Intel would spin off the unit, as AMD did with Spansion.
But Alan Niebel, a flash memory analyst at Web-Feet Research Inc. (Monterey, Calif.), said he believes Intel will not spin out its NOR flash division, which accounted for about $2.5 billion in revenue last year.