Intel banks on new chips and new technology

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When asked about morale at his company, Paul Otellini recalls the mood of staff a week ago when Intel warned Wall Street about another tough quarter.

During an open forum for workers at the world’s biggest chipmaker, the chief executive explained that demand for its microprocessors was turning out to be weaker than expected in the first quarter as it suffered further losses in market share to rival AMD.

Response from the audience of sales, marketing people and engineers at Intel’s Folsom campus in the foothills of California’s Sierra Nevada was “as lively and robust and challenging as anything we’ve had”, he recalls. “It was not a bunch of people who were morose or shocked.”

This week the chipmaker had a chance to fight back at its Intel Developer Forum (IDF) in San Francisco, where it unveils many of its product plans and chip roadmaps to its developer community.

Executives’ speeches focused on its first new architecture in five years being introduced in the second half. It promises major performance and energy-saving improvements for the complete range of mobile, desktop and server processors.

“With these products that are coming, I think we will see the energy levels just pick up,” says Mr Otellini.

Intel’s 100,000 employees worldwide have a case for being downhearted, with shares in their company dipping below $20 to their lowest level in 18 months. But their leader recalls that each time Intel has combined new processor designs with advances in core technologies, it has made rapid gains in market share.

Mr Otellini predicts this alignment will happen again this year as the new chips become available and Intel’s huge manufacturing capacity switches to silicon with circuit widths of just 65 billionths of a metre, down from the current 90 nanometre standard. Intel says it is a year ahead of AMD in making the switch.

The cost savings brought about by the smaller circuitry mean the price cuts that analysts see as inevitable as Intel tries to win back market share will be less painful.

For its part, AMD argues it is still getting far better performance than Intel out of 90nm and customers are favouring its processors on more than just price grounds.

“Just because you have the capacity doesn’t mean you’re the leader – look at General Motors, it’s not a fait accompli,” says Margaret Lewis, director of commercial solutions strategy at AMD.

“Yes Intel has a lot of money and it can cut prices. But the sales force of one of our partners say they had a customer that would not accept its processors [when offered] for free.”

All processor manufacturers are emphasising “performance per watt” in their sales pitches – arguing that the new dual-core technology that puts two processors on the same chip gives both performance improvements and energy savings. These can dramatically cut utility bills that exceed the cost of the computer over its lifetime.

AMD’s lead in cooler, faster processors has seen its market share grow to 15.3 per cent in the fourth quarter, up from 9.6 per cent a year earlier.

But the developer forum was told that Intel’s new architecture would bring an 80 per cent improvement in performance and a 35 per cent increase in energy savings in its top-end server processors.

With PC demand weakening, Intel is also exploring new markets and concepts to maintain its growth. Its one-year-old Digital Health division is still in its formative stages but Digital Home has got off to a strong start with the launch of the Viiv platform in January and the shipping of hundreds of thousands of units this quarter.

IDF also saw the unveiling of the Ultra Mobile PC by its Mobility division. The UMPC, developed in concert with Microsoft, is an attempt to define a new smaller type of notebook device that offers entertainment options, wireless internet connectivity and makes the keyboard optional.

“There’s a lot of potential for it in the upper end of the consumer segment and even the broader consumer market. For this to get the most attention, they’ve got to get it to a price point of under $500,” says Tim Bajarin of the Creative Strategies consultancy.

Mr Otellini appears cautiously optimistic: “It’s a non-existent market today but one could argue that the iPod was addressing a non-existent market [when it launched].”

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