Is Intel a one-hit wonder?
Two and a half years ago, I wrote an article entitled Intel: The one-hit wonder. My conclusion, at the time, was that Intel's business and operating model--built around its dominance in PC processors--is a trap that has kept the chip giant from competing effectively in hot markets like communications and consumer electronics.
With Intel Developer Forum in full swing in the city by the bay, I found myself wondering, has anything changed since I wrote that story and is the conclusion still valid? In my opinion, the answers are no and yes, respectively.
Don't get me wrong. Intel is still the world's 800-pound chip gorilla. It's actually made quite a comeback from a tough bout of market share loss to perennial rival AMD. The Centrino brand is killing in the mobile Wi-Fi space and it's working feverishly to duplicate that success with WiMAX.
That said, the Santa Clara, Calif., company is largely irrelevant in the hottest growth markets: chips for mobile phones, MP3 players, set-top boxes, game consoles, HDTVs, and the like. Intel spent billions on the communications market before finally admitting defeat and selling its communications chip business to Marvell for $600 million.
Looking at the big picture, Intel's share of the worldwide semiconductor market fell 11 percentage points from 2005 to 2006. At the same time, all four of the remaining top five companies--Samsung, Texas Instruments, Toshiba and ST Microelectronics--registered double digit gains.
It's no consolation that the notoriously paranoid Intel saw this coming more years ago than it would like to remember. Nevertheless, it still hasn't found a way to extend its reach beyond the PC processor market. That's because Intel's business model and operations, from top to bottom, are unique to a company that dominates the PC processor business.
Here's an example of what I mean. Healthy financials for Intel means gross margins and operating income of roughly 60 and 30 percent, respectively. Just look at what competition from AMD has recently done to its fundamentals: gross margins have fallen below 50 percent and operating income is down to 16 percent. And that's in Intel's core market. What do you think investors have to look forward to as the company seeks to expand into new markets where nimble competitors are already entrenched?
But it's not just Intel's financial model that's got it stuck in neutral. The company's product development, marketing, sales and even its manufacturing operations are all specific to PC processors. You see, Intel develops relatively few, general purpose products, which are then manufactured in high volume and sold at a high average selling price through a relatively narrow channel. These are not characteristics of an adaptive company slugging it out in a highly competitive market.
The bottom line:
Twenty years ago, before the PC market took off, Intel was the tenth largest chip company in the world. It was one of the pack. The confluence of factors that changed that--IBM's unwitting creation of the Wintel duopoly--was a one-time event. To date, the company has yet to leverage its leadership position in PC processors to gain a foothold in any other significant markets.
Intel is still a one-hit wonder, stuck in an awkward position as an industry leader. Of course it can change its strategy, reposition and restructure. IBM did it and so did others. But it'll take strong leadership from the top, and probably, for the first time, a CEO who didn't grow up in an effective monopoly.
Steve Tobak is managing partner of Invisor Consulting LLC. He is a member of the CNET Blog Network, and is not an employee of CNET. Disclosure. 
