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Intel flounders in new market

Michael Kanellos CNET News

Published: 29 Dec 2003 12:30 GMT

Success doesn't always breed success.

That's the lesson from the recent announcements from Intel that it plans to merge its two unprofitable communications groups and take a $600m (£338m) charge to cover losses associated with an acquisition.

Even though it is the largest, richest and most successful chipmaker on the planet, Intel has struggled to become a titan in the market for communications chips. In a way, a company merging into a new market is like a person trying to change personality. Since 1999, the company has spent more than $11bn on at least 37 companies, most of which are in the communications market.

Many of these acquisitions have since been folded or spun out at a loss, according to sources. The newly merged units -- the Intel Communication Group, which makes silicon for routers and other telecommunications equipment, and the Intel Wireless Communications and Computing Group, which makes cellphone chips -- have together amassed $2.6bn in operating losses since 2001. Several management changes have occurred.

"Becoming the world's leader in processors for the PC was part of their destiny," said Steve Tobak, a principal consultant at Invisor Consulting. "This is different. There is the question: whether their heart is truly in it... Networking is not in their blood."

Interestingly, Tobak's comment isn't a recent remark. It dates back to 1999, when Intel's buying bender had just started cranking up.

So, what went wrong? The downturn in the communications market certainly hurt. Intel's two communications groups swung from a $927m operating profit in 2000 to a $991m loss in 2001. (Those numbers, however, also reflect results from Intel's flash memory group, which has been around for years and is said to be profitable.)