January 11, 1999, Issue: 1142 Section: Semiconductors

Time to classify Intel as a computer company

Susan Ayers-Walker And Rob Walker

The traditional classification of Intel Corp. as a chip maker distorts the true size of the current semiconductor depression, and conceals Intel's worldwide domination of all computers-personal, portable, desktop, workstation, server, and enterprise.

The common misclassification of Intel as a chip maker is a result of influences by three powerful groups-semiconductor suppliers, computer manufacturers, and traditionalists-each of which have a vested interest in keeping the status quo.

Pure semiconductor companies such as Advanced Micro Devices, LSI Logic, and National Semiconductor don't want to admit they're in a no-growth business. Subtract Santa Clara, Calif.-based Intel from the semiconductor segment and you have flat and falling revenue in 1997 and 1998.

The so-called computer guys do not want to admit they are simply packagers of Intel components and motherboards. Intel has won the 32-bit personal-computer wars. (Memo to Steve Jobs: Don't cross your microprocessor supplier and expect Mac upgrades.) Proprietary 32-bit RISC processors from Digital Equipment, Hewlett-Packard, IBM, Silicon Graphics, and Sun Microsystems are on the defensive. As we move to 64-bit processing, Digital, Sun, HP, and Silicon Graphics have capitulated and adopted Intel's Merced design. Only IBM appears to remain as a non-Intel 64-bit player in the new millennium.

Traditionalists remember when Intel was a broad-spectrum semiconductor supplier. Memories were a major product; indeed, Intel virtually invented DRAM and EPROM. Microprocessors, microcontrollers, telecommunications components, and even ASICs were available. Today, more than 90% of Intel's revenue is in computer components, motherboards, and software.

In fact, Intel's latest initiative has nothing to do with promoting new chip technology: It has assembled a "tiger" team that aims to eliminate a number of traditional I/O ports over the next few years, including the ISA bus, serial ports, the PS/2 port, and the game port. In addition, it will acquire network supplier Shiva Corp., and has invested in operating system suppliers Red Hat and Be, according to news reports. Intel has also invested in DRAM supplier Micron Technology Inc.

To test the thesis that Intel is really a computer company, we ran the concept past some industry seers. Semiconductor veteran Wilfred J. Corrigan, LSI Logic's chief executive, said, "Well, everyone knows Intel is primarily a computer company. If you subtract Intel from the 1997 4% growth in the semiconductor sector, growth would only be 1%." Consultant Michael Slater of MicroDesign Resources Inc., Sebastopol, Calif., said. "I agree with your premise, in part. Certainly, Intel is the center of the computer industry, owns the key standards, and is the primary supplier of CPUs, graphic chipsets, and leading-edge motherboards. On the other hand, they sell primarily to OEMs, and are not a major supplier of complete computer systems."

Even so, one could argue that Intel's dominance in architecture and synergy with Microsoft's operating system offsets its need to sell boxes.

Next queried was Jim Feldhan of Phoenix-based Semico Research Corp. "Be careful what you call computers," he said. "Intel has a dominant position in desktop computers and a growing dominance in workstations, servers, and supercomputers. On the other hand, in the embedded-microcontroller segment, they have a major, but not dominant, position.

"If you have a late-model VCR, automobile, television, set-top box, cellular phone, etc., you own a number of embedded microcontrollers. Intel holds a strong third place with about 10% of the embedded market, following Motorola and Hitachi. We estimate Intel's 1997 revenue of over $25 billion was 91% in the computer market, with most of the remaining in the embedded-microcontroller area."

So, what's the point? Move Intel to the computer sector where it belongs. Then let the semiconductor guys be seen for what they are: low-growth, capital-intensive, but essential operations that innovate more and faster than software suppliers, and which provide the foundation that holds the rest of this high-tech stuff together.

-Susan Ayers-Walker and Rob Walker are the founders of Walker Research Associates (www.walkerresearch.com), a Menlo Park, Calif., firm that provides marketing and management services to new-technology and emerging businesses.

Copyright (c) 1999 CMP Media Inc.