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Friday, August 11, 2006

Intel Sounds The Retreat

Stocks: (INTC)(AMD)

Intel’s attempts to further focus its business on its core chip manufacturing and marketing took another step as the company sold it voice communications business that includes circuit boards, systems and software. Eicon Networks in Canada was the buyer.

Although it is unlikely that the business represented much income for a company that does nearly $40 billion in revenue a year, it is a retreat from the multiple properties that the company bought a few years ago, none of which seemed to mesh with the computer chip core of the company. At one time, Intel also focused a great deal of attention on its Intel Capital business that made investment in dozens of companies that might help move the company’s business goals forward. Now, Intel Capital is rarely mentioned in the company’s communications with investors and the press.

Intel is refocusing at the right time. With AMD winning customers like IBM and Dell, the new dual core chip technology offers several advantages over AMD’s latest chips. The run with less power consumption and give off less heat. They computing power is greater than the Pentiums that they replace.

Intel is still faced with the question of whether the PC and server businesses want progressively better chips, especially if they cost more. Some media has commented that Pentium prices were cut up to 61% to clear out inventory. With many consumers uninterested in faster and faster chips, it may be that the like of Dell, Lenovo, and Hewlett-Packard would rather have the cheap Pentiums than more expensive chips with additional bells and whistles.

The other issue Intel faces is that feature sets are not the only basis on which it competes with AMD. Winning customers often involves price concessions, particularly in the chip business, and the last thing that Intel needs is margin pressure.

Intel not longer has many true believers on Wall St. At $17.50, the stock is only a sliver away from its 52-week low of $16.75 and down about 40% from the period’s high.

Intel’s new focus is laudable, but the question remains if it will be successful.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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