Intel Corp plans to build communications chips at its own plants rather than just using outside contractors, as the world's biggest semiconductor maker tries to boost sales in the money-losing unit.
Intel said at an analyst meeting last month that it's starting to bring much of the communications unit's manufacturing in-house, after years of leaving the work to outsiders.
That means putting the techniques behind making its best-selling computer processors into communications products, a shift that may be its top advantage as Intel tries to take market share from slower-moving rivals. If the company designs better manufacturing methods and balances factory time between its long list of chips, investors said Intel may have the upper hand.
"They are getting confident that they are gaining traction," said Graham Tanaka, whose Tanaka Capital Management owns the stock and manages US$160 million. "I'm only pleased when I see a lot of profits, but I'm getting more encouraged."
Weighing the risks
There are risks. Any time chipmakers make radical changes, there's a fresh chance to make mistakes. Rivals such as Broadcom Corp that use contractors don't have to spend on equipment and factories that may not be kept busy when demand slumps.
Still, Intel's new semiconductors will probably be faster than rival offerings and cheaper to make, analysts and investors said. As clients try to reduce costs and lure customers back with new features, the company says it has found an advantage.
"Manufacturing is the key card," said Sean Maloney, the executive vice president running the communications business.
"More than anything else, it's manufacturing."
Communications-chip sales slid 38 percent last year, with some sub-markets declining 70 percent or more as clients go out of business or slash spending to cope with surging debt levels.
Intel's communications unit had an operating loss of US$150 million in the first quarter on sales of US$518 million, compared with a US$153 million loss on US$775 million in sales a year earlier.
The unit represented 7.6 percent of Intel's revenue.
"They're still losing an awful lot of money," said Brooks Gray, an analyst at Technology Business Research Inc.
Intel won't say how much the move will cost or might save.
It's hard to know before seeing how much work Intel brings in-house, investors said. Stockholders figure it fills the plants, spreads out depreciation expenses among more chips and lowers payments to contractors.
Long-term strategy
In 1997, Santa Clara, California-based Intel started buying companies that made chips for communications and fiber-optic gear.
The acquired companies contracted their manufacturing out. After Intel purchased them, it continued to use those so-called foundries to build the chips.
That will change next year. Intel will do most of the manufacturing for key products such as fiber-optic chips in its own plants, Maloney said. The rest will stay at the foundries.
The move will speed up plans to shrink the circuits in those semiconductors, which helps make them faster. At the same time that it starts to use super-thin wires in its PC processors, the company will add them to its communications chips.
Rivals are slower to adopt the latest changes in manufacturing for communications and networking chips. Even top foundries in Asia can't craft features as small as Intel can.
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