It’s been an eventful time for Intel after its earnings call and then news that the chip vendor is spinning off its Network and Edge Group (NEX) as a standalone business. Intel made no formal announcement on the spin-off, rather, the story was broken by a customer memo leaked to CRN.
The NEX business covers networking silicon, Ethernet, and communications infrastructure. Intel intends to find strategic investors for NEX and will remain an “anchor investor,” similar to what it did with MobilEye and the Altera FPGA businesses.
“We plan to establish key elements of our Networking and Communications business as a stand-alone company, and we have begun the process of identifying strategic investors,” an Intel spokesperson told Network World. “Like Altera, we will remain an anchor investor enabling us to benefit from future upside as we position the business for future growth.”
CEO Lip-Bu Tan has been on a tear since becoming Intel’s CEO in March. From the start, he said that he would be looking to spin off business units that were not core to Intel strategy and he is keeping his word. It was reported as early as May that Intel was looking to sell the NEX business unit.
“It makes sense for Intel to spin out this business as its really isn’t all that strategic to its long-term goals,” said Jack Gold, principal analyst with J. Gold Associates. “The NEX group at Intel was a small business, mostly concentrated in the telecom sector for its sales. So, while that’s an important market, it’s also relatively small.”
Gold figures that the business probably won’t be bought outright by any other players but will likely be funded partially by Intel and by investments companies, much like other Intel spin outs have. “It could also get some funding from its major customers like Ericsson. But I doubt you’ll see major networking companies like a Cisco try to acquire the business,” he said.
It’s a shining example of the old cliche that those who do not learn from history are doomed to repeat it. When Paul Otellini took over as CEO in 2005, he had to cut Intel’s wasted effort on communications back then as well. Intel attempted to become a player in the comms business, making over a dozen acquisitions of small companies that never went anywhere. In the end, it fell to Otellini to clean up the mess just as Tan is doing now.
Coming out of the earnings call, there has been considerable misunderstanding on a statement made by Tan regarding the 14A node process. Tan said the following on the quarterly earnings call with Wall Street analysts, as per transcript on Seeking Alpha:
“Up to and through Intel 18A, we could generate a reasonable return on our investments with only Intel Products. The increase in capital cost at Intel 14A, make it clear that we need both Intel products, and a meaningful external customer to drive acceptable returns on our deployed capital, and I will only invest when I’m confident those returns exist.”
This has been interpreted by some as stating that Intel will cancel 14A if it doesn’t get enough external customers, which is not the case, experts said. For starters, it needs 14A for its own processors. And secondly, Tan did not mean he would cancel the design node.
“The increase in capital costs at Intel 14A make it clear that we need both Intel Products and a meaningful external customer to drive acceptable returns on our deployed capital, and I will only invest when I’m confident those returns exist,” Tan stated.
First, Intel has previously announced that it is working with two early external customers on 14A and it has its own products already committed to 14A. “I think that the way it was presented it freaked everyone out,” said Jim McGregor, principal analyst with Tirias Research. “I think they were trying to make a point to their customers to say listen, we need you to belly up to the bar not just stay on the fence.”
In other news, there was a major AI event held at the White House and hosted by President Trump. Among those in attendance were NVIDIA CEO Jensen Huang and AMD CEO Lisa Su, both of whom were praised by the President for their work. Conspicuously absent was Intel, another sign of how far it has fallen in relevance.
“They’re not a big player right now,” said McGregor. “IBM said that they’re going to be using some of the Gaudi products but they’re basically almost giving them away. Intel is not a significant player for AI this point in time other than for PC’s which let’s face it that that is more hype than reality now because pretty much most AI still in the cloud.”
Source:: Network World