Intel Overhauls Chip Lineup, Shuffles Executive Ranks

The bad news never seems to end for Intel. Soft financials, management cutbacks, and a shake-up of senior executives are just the latest developments amid sliding sales and market share. The world's largest maker of microprocessors wants to change the conversation from the mistakes of the past to the promise of the future.

Step one: an overhaul of its processor lines. Intel last week introduced five new versions of its high-end Itanium 2 chips. This week, it formally introduces its mass-market Core 2 Duo platforms for desktops and notebooks. The company will introduce quad-core versions of its processors for servers and desktop PCs this year, rather than next year as originally planned, beating rival Advanced Micro Devices to market with new technology--an increasingly rare coup. The moves are turning up the heat on AMD as the heightened competition cuts into both companies' financials.

Intel is "well positioned for the second half," CEO Paul Otellini says, referring to the new processor lines and revamped organization. "We have reset our entire lineup. We're making good progress in finding ways to improve our efficiency while at the same time delivering the best microprocessors in the world."

Billions Wasted
Early reviews of the Core 2 Duo systems are favorable, and Intel is counting on the new chips to perk up its financials. Second-quarter results announced last week showed declines in both revenue and earnings compared with the previous and year-ago quarters. Intel recently eliminated about 1,000 management positions and said more layoffs may be in the offing. And last week it announced a senior-level management shake-up. As part of its cost-cutting, Intel also sold its cell phone processor business last month, acknowledging failure after years of effort and billions of dollars in investment. More businesses may be jettisoned. In contrast, AMD last week reported a strong rise in earnings but a decline in revenue because of price competition with Intel.

The Core 2 Duo chips being introduced this week are part of the company's new Core architecture, which will span all of Intel's major platforms, from servers to laptops. The chips offer more power and use less energy than previous product lines.

Intel needs better ammunition in the x86 server market. In the first quarter of 2006, AMD had 15% of the worldwide x86 server processor market and nearly 26% of the U.S. market, according to Gartner, compared with 5.7% and 9% in 2005. AMD also holds 36% of the worldwide market for four-way servers. AMD's server share has grown over the past two years as it beat Intel to the punch with 64-bit x86 processors and dual-core processors that offer more performance per watt, a key factor in data centers where hundreds or thousands of densely packed servers consume large quantities of electricity. AMD's processors proved so popular that even Dell, once an Intel-only computer maker, said earlier this year it would start shipping AMD-based servers.

On the PC side, Intel has fared better in holding back AMD's advances. AMD says the company has used illegal tactics to retain control of the desktop and mobile markets and has filed lawsuits against Intel in the United States and Japan.

While AMD can make a good case for why its server chips are better than Intel's, it faces a tougher challenge differentiating its PC chips--especially for notebooks. Intel has built a strong position through its Centrino notebook chipset, which helped create and define mobile computing via Wi-Fi hot-spots.

But Intel hasn't had a big success since Centrino. It's counting on Core 2 Duo to turn its fortunes around, promising that the new line will boost overall performance by 40% over other PC chips and improve performance per watt by 40%. Tests conducted by CRN, a sister publication of InformationWeek, show that Intel's Core 2 Extreme Processor outperformed AMD's top-of-the-line Athlon FX62 dual-core processor by almost 28%.

Intel still is struggling at the high end. The five Itanium 2 chips move the oft-maligned processor line into a dual-core implementation for the first time. Itanium once was supposed to be the future of servers, but Intel had to reposition it solely as an alternative to high-end RISC processors such as IBM's Power and Sun Sparc. Among the big four server vendors, only Hewlett-Packard, a co-developer of the chip, still sells servers that use Itanium. HP buys 60% to 70% of all Itanium chips, and Power and Sparc continue to outsell Itanium.AMD isn't sitting back. It's investing $2.5 billion to expand its German chip plant, letting it move from its current 90-nanometer manufacturing process to 65 nanometers by year's end. Intel already is making 65-nanometer chips, which lets it pack more transistors inside individual chips and put more chips on each silicon wafer.

The good news for customers: better chips and lower prices.