Intel thinks small is key to big boost

Intel, the world’s biggest chipmaker, on Thursday said profit growth would outstrip sales increases, as it predicted the next major shift in its business would be to supply processors for a new range of low-cost, low-powered internet devices.

“These are likely to be the next inflection points for us,” Paul Otellini, chief executive, told the company’s analyst day in New York.

On profits, he said: “While we will have revenue growth this year and we will certainly have revenue growth, I would expect, next year, we now project that our bottom line growth will grow faster in 2007 and 2008 than our top line growth.”

Mr Otellini said a move in the second half to the next level of chip miniaturisation, with circuit widths down from 65 nanometres - or billionths of a metre - to 45, would enable a broad expansion of its product line.

At the high end, it could add processors with more than its current maximum of four cores or brains. Octo Core – chips with eight processing units - would be next, he said, and options would be expanded further with a processor family codenamed Larrabee, capable of more than eight cores and powering high-performance computing.

At the low end, a family of processors codenamed Silverthorne would be introduced. These would find their way into smaller mobile internet devices, consumer electronics devices such as set-top boxes in the living room and low-cost PCs sold in emerging markets.

Chips produced in 2008 would be a quarter of the size and use a quarter of the power of those being made in 2006, while advances in 2009 and 2010, which would put all functions on a single chip, would make Silverthorne sizes one-ninth and power usage one-twentieth of 2006 levels.

Mr Otellini said the new chips would give Intel an explosive growth opportunity. He predicted that new markets, which didn’t exist today, for mobile internet devices, consumer electronics ones and ultra low-cost PCs, would be worth $10bn each in 2011 and total 900m units.

Margins would not be as good for Intel as in its higher-end products, but it was reducing costs with the smaller chip size, he said.

The chief executive had discussed a restructuring of the company at its spring analyst day a year ago, after profits had fallen by a third and its share price fell 20 per cent on the year. It was losing market share at the time to its rival Advanced Micro Devices.

On Thursday, Mr Otellini confirmed that Intel had been regaining market share and was on target to achieve structural savings of $2bn in 2007 and $3bn in 2008.