In an interview that Gordon Moore gave in early 2000, the former co-founder of Intel recounted how they abandoned the DRAM market in the early 1980s in order to exit the increasingly unprofitable business and focus on the promising, yet still young x86 processor market. Intel was also home to EEPROM and NOR Flash, two memory technologies that spirited their way into the embedded markets. Now, opportunity arises for Intel to jump back into memory with both feet by buying Micron. What would be the logic of Intel going Back to the Future?
I believe part of the answer can be found in the same interview with Moore. At one point the interviewer asked about the raging battle between CISC and RISC at the end of the 1980s and early 1990s. CISC stands for Complex Instruction Set Computing (i.e. Intel x86) while RISC stands for Reduced Instruction Set Computing (e.g. SPARC, MIPs, ARM). Moore says the reason RISC was widely embraced, as the architecture of the future is because memory speeds caught upand matched processor speeds. The net result was that with RISC you could do a lot of simple operations going to memory very rapidly vs. CISC that tried to do a lot of operations on the chip. CISC was bigger but given Intel’s high volume, it did not turn out to be a cost penalty. Also Intel thrived on the PC software ecosystem tied to x86.
Today Intel grapples with the opposite position where memory is much slower than the processors so they need to develop new ways to closely couple DRAM and Flash to their multi-core processors. Intel can generate extra value in the server space if they can demonstrate a total solution that improves the performance per watt. In the consumer space, Intel may look to new package technologies to shrink the footprint in the rapidly evolving tablet and ultrabook space.
All these possibilities are bolstered by the state of the semiconductor industry and the current way Wall St. values Intel. Intel is valued at a P/E less than 9 or like an early 1980s Detroit Auto Company not knowing if survival is possible. The difference is that they are investing nearly $11B in CapEx, buying back $10B of stock this year and issuing over $4B in dividends. It is gushing with cash flow that has to be put to good use. All attempts to win over Wall St. have failed because of the fear that the PC market will collapse overnight. HP spinning out its PC business adds to the climate of fear.
Weather PCs grow 10% or decline 10%, Intel has to continue moving forward with its Barbed Wire Fence Strategy (see Intel’s Barbed Wire Fence Strategy) in order to diminish competitors and increase its ownership of the platform $$$. This could be the final consolidation phase of a market that is similar to how IBM eliminated the 7 dwarfs in the 1970s and 1980s. Intel was able to increase its platform ASP the past 12 months with the integration of graphics and the shift to mobile from desktops. If the PC market turns down, then the pressure should be felt by nVidia and AMD first.
Assuming Intel goes ahead with the purchase of Micron, there has to be a manufacturing angle as well. A semiconductor industry analyst pointed out to me that he thought Samsung was in the lead to getting to 450mm with Intel right behind. Samsung’s first choice for 450mm is Flash memory in an attempt to separate themselves from Toshiba, Sandisk and Micron. Intel may view NAND as a strategic asset that can not be dominated by Samsung., otherwise it becomes a thorn in their platform side. With a Micron acquisition, they would have two drivers on 450mm: NAND flash and x86 processors.
The obvious conclusion to this is that Intel’s future PC and Server platforms will be comprised predominately of x86 and SSDs (DRAM and HDDs are minor commodity components) and Intel does not intend to split the platform $$$ with Samsung or ARM.
