Intel shows signs of revival

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September 26, 2006|By Bob Keefe | Bob Keefe,Cox News Service

SAN FRANCISCO -- When Intel Corp. chief executive Paul S. Otellini takes the stage here today to kick off his company's conference for developers and partners, he'll talk about Intel's forthcoming "quad core" semiconductors with four separate processing engines.

He'll discuss his company's plans for more power-efficient chips - the rallying cry for the semiconductor industry these days. He'll probably give up some new details about Intel's strategies for wireless networking, home entertainment and health care.

But what everybody will really want to know is whether the world's biggest semiconductor company, widely seen as bloated and slow in recent years, is finally back on its feet.

"He needs to demonstrate that Intel has its mojo back," said semiconductor industry analyst Nathan Brookwood.

Over the past several years, Intel clearly lost some of its magic.

The company's widely held stock is down about 30 percent from where it was three years ago. Until recently, it repeatedly missed crucial deadlines and made big bets on technologies that didn't pan out.

Worst of all, Intel left the door open for archrival Advanced Micro Devices Inc. to grow from an industry pipsqueak into a real contender.

While Intel floundered, AMD flourished, growing from an almost inconsequential market share to sneaking ahead of Intel in some areas, including the retail PC market late last year. Even No. 1 computer maker Dell Inc., Intel's staunchest ally in the PC business, is now using AMD inside some of its computers.

Intel paid dearly in other ways too.

Earlier this month, it announced it was axing about 10,500 jobs - about 10 percent of its work force - and indicated that tougher restructuring moves may be on the way.

It also is shedding unprofitable ventures that don't fit into its primary business, computer chips, to raise cash and move toward its goal of cutting operating expenses by $3 billion over the next two years. Two weeks ago, for instance, Intel announced it is selling off its optical networking business for $115 million.

Many analysts say Intel has learned its lessons and is just about done taking its lumps.

"[Intel] is indeed in the midst of a solid turnaround," wrote analyst John Barton, of the investment bank Cowen and Co. LLC, in a recent research note.

In regard to the strength of its product line and position against AMD today versus a year ago, "there's no comparison," added Brookwood.

Intel officials are quick to point out that the company recently has introduced dozens of new chips and other products in every segment of its business - often ahead of schedule. It also is regaining market share from AMD, and once again can legitimately claim many of its chips are more powerful and energy-conscious.

That doesn't mean Intel is back on firm footing just yet.

It is now locked in a bitter price war with AMD that could end up hurting both companies. And while sales are picking up, Intel is apparently having some problems getting chips to customers fast enough.

"I've talked to lots of people who are struggling because they can't seem to get their hands on large numbers of" Intel chips, Brookwood said. That could hurt the company in coming months.

Brokerage firm CIBC World Markets concurs, saying the price war and inventory issues may portend choppy seas ahead.

"While management appears to be taking critical steps to right the ship, near-term head winds continue to warrant a cautious stance in our opinion," CBIC analyst Rick Schafer and others wrote in a research note.

Intel knows it still has more work ahead to reassure Wall Street and others that it's back on solid ground.

To do so this week, it will likely give firmer dates for its forthcoming chip lines and more details about its product plans.

Intel spokesman Bill Calder said the Santa Clara, Calif., company already is mostly "out of the hole."

"If the next question is whether we can bring our legs, feet, shoes and the rest of us out of the hole, I think the answer is yes," he said. "And you're going to see how" at this week's developer forum.

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