By Charles King, Pund-IT, Inc. December 16, 2016
As an IT industry analyst, I’m seldom invited to attend financial analyst events. There’s a certain logic to that. For one thing, the two disciplines differ significantly, especially in terms of regulations that can leave financial analysts more tightly bound. For that reason, vendors tend to engage the groups separately and stick mainly to product development and market strategy issues when they talk with industry analysts.
But that’s not a hard/fast rule, and Intel is one company that regularly invites members of the industry analyst community to their annual financial analyst briefing in mid-November. As it has in the past, this year’s event provided me perspectives that are and will be quite valuable in the work I do in 2016 that focuses on Intel.
The focus on process
What is quite clear from the get-go at these Intel events is the company’s roots and continuing position as a manufacturing innovator. That may seem obvious on its face, but it is at odds with much of Silicon Valley’s public face and is a condition that has escalated in recent years as more and more technology manufacturing moves overseas.
As such, the company’s unique value to shareholders and customers rests on its ability to consistently develop and make commercially workable advanced semiconductor manufacturing processes that result in billions of microscopic transistors on billions of individual microprocessors. That’s one reason that five of Intel’s six CEOs have held senior development and managerial manufacturing positions (only Paul Otellini, whose background was in finance and economics, has not).
From a manufacturing perspective, 2015 stood out as a bellwether year for Intel but also portended some future complications. It was the golden anniversary of Moore’s Law, an observation by Intel co-founder Gordon Moore about the near-annual doubling of transistor density that became a shorthand descriptor of the IT industry’s capacity for continual innovation.
Thankfully, Moore was (and is) around to enjoy the rightful celebration, but he also noted that his “law” was never meant to last forever, and that Intel and other semiconductor vendors are nearing atomic limits in transistor sizing. This won’t happen immediately and, in fact, Intel executives confirmed to the analysts in attendance that its 3rd gen 14nm design (aka: Kaby Lake) is on track for production 2016, and that the first 10nm design (aka: Cannonlake) is on track for the following year.
But Moore’s comments signaled that, by necessity, Intel and other semiconductor vendors will eventually broaden their sights to incorporate new design points, material techniques and manufacturing processes in future products.
Data center innovations
Intel’s financial analyst event featured presentations by several senior executives, but I’ll focus here on Diane Bryant, the GM of the company’s Data Center Group. Bryant’s organization is best known for the Xeon CPUs that power the vast majority of the servers sold annually. But the fact is that the organization is deeply involved in a wide range of other solutions, including chips for networking switches and storage controllers, and complementary technologies such as network function virtualization.
In fact, networking qualifies as one of Intel’s primary focal points for market development. The size of the market (currently about $17B annually) is about the same as the server market, but Intel’s current share (which Bryant estimated at 9.5% in 2015, nearly doubled its 2013 share of 5%) offers Intel enormous room for growth. If that seems overly optimistic, consider that in the 1990s, the vast majority of storage controller chips were customized ASICs and ASSPs, just as those used in most modern networking switches. Today, the vast majority of storage controllers run on Intel silicon.
Bryant noted that in the marketplace, “tectonic shifts moving in Intel’s favor,” including the growth of cloud computing. The company has avoided the disruption many vendors are experiencing and has, instead, prospered by providing silicon solutions by all players, including the largest cloud players, such as Alibaba, Amazon, Baidu, Facebook, Google, Microsoft, and Tencent, as well as numerous smaller cloud service providers.
Bryant explained that the broad diversity of cloud computing, both in terms of services, like SaaS, PaaS and IaaS that it currently supports and in its application to emerging technologies, such as IoT, will drive new and future opportunities for Intel. She also detailed areas where the company is focusing investments and efforts, including its 3D XPoint Memory DIMMS, Omni-Path high performance fabric and silicon photonics, where Bryant noted that Intel has the industry’s only on-die integrated laser
As it has in the past, Intel’s financial analyst day provided me insights and a broad, multi-dimensional view into one of the IT industry’s key players and its key markets. The company certainly faces numerous challenges, including slowing sales in PC and laptop products, and ambitious competitors in mobility and related technologies. But Intel continues to be a strong leader, enjoying success in most of its core markets and making the most out of higher margin businesses.
More importantly, the company is not being distracted from building businesses around emerging market opportunities. Like other manufacturing innovators, Intel knows how to prepare for and play the long game. By the end of the company’s 2015 financial analyst day, the portrait of Intel that emerged was that of a veteran that deeply understands strengths and weaknesses, both its own and its competitors’, as well as what it finally takes to win.
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