What would you do if you are the CEO of Intel?

[hist78]

Intel is facing serious challenges in the recent years such as:

· Stagnant revenue
· Diminishing PC/Laptops market
· No strong mobile processor product offering
· Losing huge amount of money from mobile product line.
· Escalating costs of leading edge process and manufacturing cost
· High gross margin that might not be sustainable because Intel is not the dominant player in those new market that Intel is trying
· Well-funded and well positioned competitors
· Foundry business hasn't generated big impact and revenue

Above is not the complete list and you can add your own. What would you do if you are the CEO of Intel and if you have only two years to fix it before the board asking you to spend more time with your family?

 

[Arthur Hanson]

Push into medical semis and mems, the market is still open and on the very top end the US still leads. Accept that Wintel is dying and get together with Microsoft and get a new strategy. There is to much invested and legacy to give up. Establish a Microsoft/Intel joint skunk works. Like it or not they are your partner and you live or die together. Push everyone hard for results and anyone who doesn't deliver goes. Richly reward those that deliver. No nice or easy options left.

 

[astilo]

Simply enjoy my money and hire a new CEO not coming from the Intel-inside team.
Intel can be really great, but I tell you what´s their number 1 problem (talking about the top management).
Throw them anything already working, and they can improve it to peaks that nobody could have ever imagined.
Attention to details is crazy there.
Ask them to start from the scratch or to do a substantial change to a standardized plan, and they always suck.
Their core manufacturing model is obsolete: moving tons of engineers every year back and forth from Oregon to the HVM fabs is insane and cost them a fortune. It is also too slow and getting slower and slower.
Now, short term, they cannot fail, not in the next 2 or 3 years (the market needs Intel). The problem is that if they do not do the correct moves now, they will have no future mid or long term.
Eventually, they will split the company, between design and manufacturing, as AMD already did. But they have much more money and resources, so it would not be a bad move at all, at least if they play well their cards.

 

[wow&wow]

As the Intel CEO, I can't even give out target numbers for smartphone chips because Intel only knows to do well in computing, so milk the customers (particularly IT and commercial customers) as much as I can for the next two years, pocket my compensation, quit and spend time with my family and be happy!

 

[wow&wow]

Medical likely needs more-than-enough CPUs + great GPUs that sounds like AMD APUs, i.e. AMD APUs are likely better fits : (

 

[hist78]

I just found out that about 30 years ago a person at Intel asked a similar question as I asked:

"I looked out the window at the Ferris Wheel of the Great America amusement park revolving in the distance, then I turned back to Gordon and I asked, “If we got kicked out and the board brought in a new CEO, what do you think he would do?” Gordon answered without hesitation, “He would get us out of memories.” I stared at him, numb, then said, “Why shouldn't you and I walk out the door, come back in, and do it ourselves?”

The person asked the question was Andy Grove. He was the president of Intel at that time and later became one of the most successful CEO in Intel's history. Gordon is Gordon Moore, co-founder, Chairman, and CEO of Intel.

The link below has an excellent discussion about decision making and the so-called "revolving door test".

The Revolving Door Test: How Intel overcame fear by gaining an outsider

 

[Arthur Hanson]

Hist78, Two great men both used the same phrase "Only the paranoid survive" Andy Grove and Tim Cook. I'm just starting to write about the greatest product Silicon Valley has produced. I hope it's worthy of the people that built the Valley.

 

[Brianhayes]

Split the business into design and manufacture. Partner Deiign with MSFT and Manufacture with AAPL.

 

[benb]

The first thing Intel has to do is recognize the PC business has become like the DRAM business back in the late 1970s; it is becoming commoditized, too competitive, and will not support their traditional margins. ARM ecosystem mobile chips will be "good enough" to replace x86 chips in 1-5 years, at a decisively lower price point. Intel may be able to retain the server business longer than this.

Intel has to start over with a new CEO and a new business model. A tiny spinoff from the legacy Intel. Like Intel in the late 1970s.

 

[lefty]

I'm surprised no one mentioned contra-revenue.
The first thing I would do is stop the contra-revenue and stop trying to compete in the low end. Intel cannot make a profit on $5 SoCs and never will.

 

[Arthur Hanson]

This is why if I were Intel, I would stick to medical mems, especially very specialized ones where you could have iron clad patent protection. These would be part of SOCs that would also be specialized. This would require teaming up with the best of US medical companies and research institutions. Also build these into the Adroid and Apple market. Accept that Wintel is dying, when your drowning, don't hold on to a lead weight. Microsoft and Intel need to work together to not only change their business model, but stop building on a model of high prices for mediocre software. I use Open Office and should have left Microsoft Office a long time ago.

 

[hist78]

I'm surprised no one mentioned contra-revenue.
The first thing I would do is stop the contra-revenue and stop trying to compete in the low end. Intel cannot make a profit on $5 SoCs and never will.

I totally agree with you. In 2013 and 2014 Intel lost about $7 billion from their mobile product division and majority of that loss were caused by "contra revenue".
I probably should post a new thread: What would you do with $7 billion cash if you are the CEO of Intel.

 

[hist78]

This is why if I were Intel, I would stick to medical mems, especially very specialized ones where you could have iron clad patent protection. These would be part of SOCs that would also be specialized. This would require teaming up with the best of US medical companies and research institutions. Also build these into the Adroid and Apple market. Accept that Wintel is dying, when your drowning, don't hold on to a lead weight. Microsoft and Intel need to work together to not only change their business model, but stop building on a model of high prices for mediocre software. I use Open Office and should have left Microsoft Office a long time ago.

Intel should start working aggressively with many partners, not just Microsoft, Cisco, HP ... those huge but often slow moving companies. There are many more small to medium size companies who have good products and fresh idea. The problem is Intel's organization is fine tune to serve a few large scale products. Their culture can easily kill those smaller projects at their infancy for the reasons: A. potential market is small B. it's losing money.

But amazingly Intel doesn't have any problem to throw $7 billion out for the mobile product line that proved itself at least twice that they are capable to generate "negative" revenue.

 

[benb]

I think Intel placed a lot of hopes on RealSense and the Atom Z3580 to pull even or pull ahead in mobile this year. But the reviews of the first product, Dell Venue 8, are pretty bad. It's expensive and significantly underperforms A8X and other tablet leader chips. And RealSense doesn't work as well as advertised.

Intel CEO needs to ensure that the products with "Intel Inside" are good products, first of all. And they need to arrive to market more quickly. Maybe producing their own products can help with time-to-market.

 

[cpuarchx]

Intel has had a quite long and successful reign of profitability in the semiconductor industry. Any replacement CEO should not forget that Intel has and continues to lead the industry of this key technology that has enabled so much of the computer industry over the last 35 years. Focus should be on maintaining the big picture view on how best to maintain its leadership position as the world's number one semiconductor manufacturer. Identifying new growth markets like the medical area may certainly be ofinterest, but I suspect that the volume potential here would only provide a fraction of what is required to feed its existing manufacturing infrastructure and R&D budget expenditures. Other areas need to also be considered, andnot to be so myopic to just the consumer electronics space.

The diminishing PC/notebook market is far from dead. It continues to be profitable and thus by all means should not be neglected. It is certainly slowing as diluted by the influx of alternative computing form factors in the mobile space and more dependency on the cloud for heavier computing loads. Rather than fight that, Intel would be better off trying to further embrace that through more synergistic solutions that better partner the client form factor with these other computing form factors and cloud based paradigms. Opportunities exist with its virtualization technology and relationships it has with OSVs like Microsoft. But the companies continue to be surprisingly disconnected in terms of their long term visions and coordination in these areas.

The basic problem Intel has had in competing in the mobile space is an inability to respond and move in this market quickly enough. It has the typical inertiaissues one finds at many big companies that have been doing the same thing for so long, and the same way. There are many aggressive and innovative competitors out there that are able to make decisions nimbly and develop products much quicker. In order to compete in such markets, it needs to match the nimbleness of its competitors with a similarly organized operation akin to a spin-off or "skunk works". I think one analogy here is that if you are up against an opponent with a fast sports car, you don't want be racing them in a big SUV. Intel's latest consolidation moves to me imply they are either giving up or not taking this market as seriously anymore; But they never did organize themselves to successfully compete in this space.

The contra revenue strategy of Intel just seemed dumb without a long term vision of how it was going to play out. It is one thing if it was needed to buy sometime until some leading edge products could get to market and gain market share, but from an outside perspective, that doesn't seem to be happening. Perhaps the delays of its 14nm process technology node aggravated these plans? In the end, all this seemed to do was set an even lower expectations on pricing in this market, and force further commoditization in the tablet space.

As for the trend for future margins: yes, it looks all downhill from here. The increasing difficulty in staying on the curve for Moore's Law does not bode well for the future in terms of manufacturing cost reduction trends. Intel seems to recognize that it needs further cost reduction efforts as evidenced by continuing incremental cuts, but these on the surface seem minor and not consistent across the company. As silicon-based semiconductor technology continues to get further pushed against this higher and higher wall, this problem just looks more formidable going forward.
At the same time, Intel doesn't seem to be putting enough emphasis on how to improve ASP to increase margin through more innovative products. As a new CEO, Intel should be addressing this numerator by encouraging more innovation through the right type of individuals with pioneering talent skills, and not legislated through some type of committee process or diversity hiring goals.

As for the foundry business, a future Intel CEO has to decide if Intel is sufficiently positioned to compete against the likes of TSMC? One needs to look at its endeavorsin the mobile business and decide if it is sufficiently nimble to support its competitor's customers. Perhaps splitting the company in two will help it address that, but to me that should be a last step after a thorough process of evaluating its competitiveness as a stand-along foundry operation. Currently I don't see sufficient evidence that this would be the right move without creating even more inefficiencies and delays in its product development divisions.

 

[Brianhayes]

At the same time, Intel doesn't seem to be putting enough emphasis on how to improve ASP to increase margin through more innovative products. As a new CEO, Intel should be addressing this numerator by encouraging more innovation through the right type of individuals with pioneering talent skills, and not legislated through some type of committee process or diversity hiring goals.

As for the foundry business, a future Intel CEO has to decide if Intel is sufficiently positioned to compete against the likes of TSMC? One needs to look at its endeavorsin the mobile business and decide if it is sufficiently nimble to support its competitor's customers. Perhaps splitting the company in two will help it address that, but to me that should be a last step after a thorough process of evaluating its competitiveness as a stand-along foundry operation. Currently I don't see sufficient evidence that this would be the right move without creating even more inefficiencies and delays in its product development divisions.

A most thoughtful contribution. For me it is more fundamental. How can a parts manufacturer that sucks 80% of the profit from its customers conceivably generate consumer innovations? The consumer risk is taken by the OEMs. For what reward? HP, for example, have just produced the HP Slate Pro 12 with the considerable innovation of being able to convert handwriting into digital. It is, of course, ARM based. If Intel were inside HP would have no chance of profit. The MSFT tablet of the same size costs double.

You say the CEO must decide if Intel can compete for foundry business with TSMC. For me, that train left the station three years ago. IMHO no chance without a partnership with a company that owns the market or part of it. AAPL is the only candidate. Absent a break up all our new CEO can do is wait to see if the termites eat away the foundations of his/her monopoly.

The foundry market is ARM based. They turned their backs on it. It is now owned by TSMC.

In in the meantime he/she can stop wasting $2 billion pa on advertising and spin. Just my opinion of course.

I must declare my prejudice. Having cut my professional teeth in pre Thatcher Britain I loathe monopolies who were, IMO, responsible for much of the destruction of British industry that I lived through at the time. It is sad to watch it happen again quite apart from the strategic implications of exporting the industry to the Far East.

 

[Staf_Verhaegen]

Intel is facing serious challenges in the recent years such as:

· Staggering revenue
· Diminishing PC/Laptops market
· No strong mobile processor product offering
· Losing huge amount of money from mobile product line.
· Escalating costs of leading edge process and manufacturing cost
· High gross margin that might not be sustainable because Intel is not the dominant player in those new market that Intel is trying
· Well-funded and well positioned competitors
· Foundry business hasn't generated big impact and revenue

Although I am a guy who doesn't like Intel's arrogance and who hoped AMD would crush Intel I do think Intel's problems are highly exaggerated. I did some googling of the last reported gross profit margin of some semiconductor companies:

• Intel: 65.36%
• TSMC: 49.7%
• Samsung: 39.87%
• Apple: 39.87%

Intel's margin is reported to go down in the future. But giving that the cloud also requires a lot of servers and Intel is king in this world I think Intel can keep on trying for a few years to get a foothold in the wireless/wearable world before their reported problems become problematic.

 

[hist78]

Although I am a guy who doesn't like Intel's arrogance and who hoped AMD would crush Intel I do think Intel's problems are highly exaggerated. I did some googling of the last reported gross profit margin of some semiconductor companies:
· Intel: 65.36%
· TSMC: 49.7%
· Samsung: 39.87%
· Apple: 39.87%
Intel's margin is reported to go down in the future. But giving that the cloud also requires a lot of servers and Intel is king in this world I think Intel can keep on trying for a few years to get a foothold in the wireless/wearable world before their reported problems become problematic.

I agree that Intel has an astonishing gross profit margin. But as any shareholders or company management will tell us, the more important part is the "net" profit margin. Although net profit is not the only factor to analyze a company, but it’s is a good measurement of a company's management, stability, market position, competition, tax burden, and future potential. A company can have amazing gross profit but get significant hit of all kinds of deduction such as tax and onetime special expense. I did a quick study to compare Intel and TSMC regarding their net profit margin.


[table] style="width: 702px"
|-
| style="height: 20px; width: 169px" | % Net Income of Revenue
| style="width: 56px" | 2014
| style="width: 62px" | 2013
| style="width: 47px" | 2012
| style="width: 47px" | 2011
| style="width: 47px" | 2010
| style="width: 47px" | 2009
| style="width: 47px" | 2008
| style="width: 47px" | 2007
| style="width: 47px" | 2006
| style="width: 47px" | 2005
| style="width: 47px" | 2004
|-
| style="height: 20px" | Intel
| align="right" | 21
| align="right" | 18.3
| align="right" | 20.6
| align="right" | 24
| align="right" | 26.8
| align="right" | 12.4
| align="right" | 14.1
| align="right" | 18.2
| align="right" | 14.3
| align="right" | 22.3
| align="right" | 22
|-
| style="height: 20px" | TSMC
| align="right" | 34.6
| align="right" | 31.5
| align="right" | 32.8
| align="right" | 31.5
| align="right" | 38.7
| align="right" | 30.2
| align="right" | 30
| align="right" | 34.1
| align="right" | 39.6
| align="right" | 35.1
| align="right" | 35.9
|-
[/table]

Source: S&P Capital IQ, McGraw Hill Financial


For TSMC, they have maintained a consistent net profit margin greater than 30% in the past 11 years. Intel, with a much smaller net margin compare to TSMC, went up and down for the same period of time . Without exploring more background, TSMC's performance is like a player with commanding power in the market while Intel is more like a beachfront ice cream shop that has no control on how weather will impact the volume of tourists and swimmers who can buy ice cream. In short, the room that allows Intel to make costly venture or mistake is much smaller than many people think.

 

[Arthur Hanson]

Contra revenue reminds me of Enron and the hypothetical future earnings. Just call it what it is, selling at a loss. When word games become more important than taking care of business, that spells real trouble.

 

[Mike Bryant]

I'd do quite a few things.

First would be my 'man on the moon' goal of a 10GHz effective single thread processor. This doesn't mean a 10GHz clock as there are many other ways to get this performance.

I'd integrate direct storage links with server processors so that SSDs don't go through levels of indirection. Ideally these would be optical but even electrical would be ok for now.

I'd simplify some of the Xeon cores by losing all the 16 and 32 bit baggage and make them 64 bit only. The existing cores would still be available for those who need legacy but a clean 64 bit only design could be faster or smaller.

I'd create a 'new memories' division with the goal of beating Samsung in volatile and non-volatile memory. If Intel can't come up with a better new idea or make an existing one better then nobody can.

I'd want a new proper graphics processor. People don't want an i7 with an integrated GPU an order of magnitude slower than nVidia.

Speaking of nVidia I'd buy them even though of course Jen-Hsun Huang would then replace me. Sometimes you find someone more talented and have to give way !
But they haven't even given me the job yet