Intel Can Grow again. Really......

Back in the early 1980's Andy Grove famously got Intel out of the much larger [in revenues] memory business, and put all of Intel's eggs in one basket and propelled INTC to the #1 spot in the semiconductor industry. But lately, there have been chinks in INTC's armour. For starters, the perennial also-ran in the CPU market - AMD had a temporary lead in the high-end [Opteron, multi-core]. But Intel's response was swift and decisive. Before long, AMD was back in the cellar and for now, Intel need not worry too much - about microprocessors and mobility.

While INTC is very good when it applies to their core business, they have had a less than stellar record - when you look at their acquisitions and other ventures. Even under Andy Grove's watch, Intel started diworseifying [sic] into the memory market. At first it was NOR flash [now divested to Numonyx]. Then they tried getting into programmable logic [Altera eventually bought most of that unit], and in 1999, they bought Level 1 Communications in one of their largest ever acquisitions. INTC bought smaller companies like Shiva to add to this unit - which was eventually packaged and sold to Marvell in 2006.

By far, Intel's worst investment till date is probably in the Intel/Micron Flash unit - which till now has cost upwards of $2 Billion. I wonder what Intel thought they'd get out of the NAND flash market, but one need not wait much longer to be convinced that it no longer is a market that INTC needs to be in.

Much of this is obvious when one looks at the most current 10Q of INTC's where for the six months ending June 28, 2008, net income attributable to the Digital Enterprise Group [includes Microprocessors and Chipsets] was $3.473 Billion; Mobility's net income for the same period was $2.417 Billion, and "all other" had a negative net income of $1.573 Billion. For the quarter ending June 28, 2008, the net income numbers for each of these units was roughly half of the six month numbers - at $1.710 Billion for Digital Enterprise, $1.251 Billion for Mobility and negative $706 Million for "other".

So, for Intel to rock and roll again:
a. Go back to basics. Andy Grove was right - get rid of anything that has to do with memory. Every dollar invested here will end up as a dollar of "impaired assets" - sooner rather than later.
b. Focus on mobility and microprocessors.
c. Stay ahead of AMD.
d. Get "junk" like Numonyx off the balance sheet.
e. Good job buying back $15 Billion of stock. Get authorized to buy back more......

Bapcha

Disclosures: Long INTC.