Intel finally fights back
At its analyst meeting, CEO Otellini announces an aggressive strategy to regain momentum lost to AMD, Intel's much-smaller but scrappy adversary.
NEW YORK (FORTUNE) - Intel has finally admitted it's fallen behind, and now seems determined to bounce back.
At its analyst meeting on Thursday, the company acknowledged throughout its recent decline in market share, technological leadership, and - as of the recently-announced quarter - profit margins.
It might seem obvious for a company to acknowledge such things, but along with Intel's longtime status as one of the tech industry's two central monopoly-owners came a certain arrogance and complacency.
But AMD's relentless march in both quality and market share gains woke Intel (Research) up. AMD (Research) may be only about 15% Intel's size, but it now commands an outsize industry influence.
On Thursday, CEO Paul Otellini unveiled a sweeping restructuring plan for the chipmaker, and announced his intent to cut $1 billion in spending between now and the end of the year.
Intel also announced a highly aggressive schedule for its latest generations of processor chips for all three of its primary product areas - servers, desktops, and mobile.
Otellini said the Woodcrest server chip would ship in June, the Conroe desktop chip in July, and the Merom mobile chip in August. A "very aggressive ramp," Otellini called it in his opening presentation.
These products, without exception, will provide Intel with what the CEO called a "sustainable industry lead both in performance and performance per watt."
Reclaiming market share
Intel's market share recently slipped below 80%, and Otellini strongly emphasized the need for market share gains in all his remarks. On the other hand, he also suggested that Intel's recent market share losses (to AMD, whose name was not mentioned) were in line with historical variations which tracked to Intel's product generations.
Otellini's primary point is that Intel's new "Intel Core Architecture," which underlies all the upcoming chips, was a fundamental "rethink" of all the processors' technologies, and will enable Intel to regain market share.
In recent interviews AMD, for its part, has not disputed the possibility that Intel would at least for a time achieve a product performance lead. However, executives say that upcoming product launches and announcements of its own will keep AMD competitive with whatever Intel does.
In addition, the view at AMD these days is that performance no longer is its only advantage. Its recent product superiority, especially in servers, has enabled it to establish strong customer relationships with a variety of major PC companies worldwide, many for the first time. Its ability to be seen as a reliable supplier and partner will likely enable it, executives say, to retain sales to many of these companies.
PC companies all want choice, as any customer does in any market, and having two suppliers enables them to pit one against another. The last thing any PC company wants is for Intel to regain its quasi-monopoly status. This fact alone will help sustain AMD's market position.
Otellini did offer one excuse for its poor performance in market share in the past year - a shortage of "chipsets." These are the additional chips and technology that accompany microprocessors; Intel is increasingly moving from merely selling chips to selling packages of chips with associated technology.
In an interview last week, Intel's marketing boss Eric Kim said that the three new chips to ship this summer will all be aggressively marketed as part of integrated "platforms." That means they will essentially function as the complete guts of computers.
This has interesting implications for the entire industry. On Thursday Intel executives spoke at length about improving their relations with "channel" partners. This refers not only to the big brand-name PC makers, but the so-called "white box" unbranded PC-makers who still represent a large portion of the market. These companies build PCs and notebooks to order for specific customers.
Intel's platform strategy will make it incredibly easy for these companies to build state-of-the-art machines in every PC product category, from notebooks to servers. These pre-assembled platforms won't require much more than a white plastic box to surround them, along with a monitor and keyboard.
A new platform
But by selling its chips in these platforms, Intel may alienate its biggest customer, Dell (Research). If the white box companies can quickly make a machine that is just as good as Dell can, that puts further pressure on Dell's pricing. Indeed, analysts are already dropping their targets for Dell's stock based on concerns about PC pricing.
Interestingly, Google (Research) is probably the most important of the white box makers today. According to some industry experts, Google is now assembling so many of its own servers that it may be the third or fourth-largest server maker in the world.
The biggest market for servers today - by far - are the gigantic server farms now sprouting up around the world to support so-called "web services" like search, e-mail, etc. A disproportionate percentage of the microprocessor industry's profits are found in chips for servers.
This is probably why AMD has focused much of the engineering in its Opteron server chips towards the needs of this market.
Intel's announcements today, impressive as they are, are unlikely to fundamentally alter the dynamics of the PC microprocessor business. But they do suggest that Intel may be about to wipe the egg off its face and re-emerge as a creditable technology player.
On the other hand, Otellini's claims have given him, and Intel, much to live up to. Any stumble in this very aggressive launch of state-of-the-art chip technology could give Intel an even more hapless image.
For more on the restructuring plan, click here.