Is Intel Making a Big Mistake?

By Shlomo  Maital   


Israel’s President Shimon Peres (left) with Intel Israel President Muli Eden and CEO Maxine Fassberg

    Israelis love Intel, for two major reasons.   One, its fab in the south of Israel is exceptionally efficient and generates billions of dollars in exports for Israel, as well as creating thousands of well-paying jobs; its R&D center in Haifa, near where I live, is a collection of exceptionally creative engineers.   Two, an Israeli, David (Dadi) Perlmutter, Intel’s Executive VP, is Israel’s most senior executive working for a large global company.  The Pentium and the Centrino were his idea.

    This is why I read with distress this morning’s Financial Times report, that 52-year-old Brian Krzanich was appointed  Intel’s next CEO, succeeding Paul Otellini.  Krzanich, an engineer, comes from the production side of Intel, rising through the ranks to manage a fab.   Otellini came from Marketing.

      Here is FT’s take on the appointment:  “His appointment will increase speculation that Intel could focus on growing this side of its business (manufacturing) to become more of a foundry for outside companies, given its lead in the miniaturization of chips….”

   A financial analyst commented:   “One of the things that Intel really needs to look at is how it can tie up with some of the key fabless chip suppliers, which are Arm-based companies like Apple and Qualcomm, in order to leverage its manufacturing strengths, even if it doesn’t get to leverage its processor design strength.”

   To me, this means Intel is giving up on innovation and focusing on its operational excellence.  I think this is a wrong decision.  History shows that those who make products – the middle of the value chain – lose profit margins to those who design the products, and those who market them.  Why else would Nike forego having its own factories, and invest solely in back-end and front-end activities? 

   Intel chips have lost the battle to ARM chips.  This doesn’t mean, however, that Intel has lost the war.  The hasty retreat is premature and does not do justice to Intel’s history of bold innovation and risk-taking.