When Intel Corp division managers ask CEO Craig Barrett for more resources, he calls them into room 514, a windowless conference room down the hall from his cubicle at the company's headquarters in Santa Clara, California.
"It's like being summoned to the principal's office," said Tom Lacey, who has been through three such meetings in the six months since he was named to run the company's memory-chip business. The unit had an 18 percent slump in sales in 2003.
Lacey, 46, said in an interview that he passed these "inquisitions," as Intel employees refer to them, by winning Barrett's approval to increase his engineering headcount by 70 percent and spend more on research for new chip designs. "The pressure is on us now," he said.
Barrett's focus on Intel's memory-chip business, whose chips store data and programs in products such as mobile phones, has begun to pay off. According to data released yesterday by iSuppli Corp, a technology research firm in El Segundo, California, Intel stemmed a decline in its share of the $11 billion market for memory chips during the first quarter.
"Intel is making the right start in diversifying to find other ways to drive growth," said Sangeeth Peruri, an analyst at J & W Seligman in Palo Alto, California, a firm that owns Intel shares and manages $20 billion. "PCs have been growing nicely but are a lot closer to maturity than they were five years ago," he said. Intel, the world's largest maker of semiconductors, said on a June 4 conference call that flash memory is the main reason the company may reach its highest sales forecast this quarter. The market for flash is growing more than twice as fast as Intel's computer-processor business.
Barrett, 64, told investors at a May meeting that communications and memory chips will jumpstart orders as sales growth is forecast to slow to 9 percent this year.
Intel had 10.3 percent of the flash-memory chip market in the first quarter, little changed from the fourth quarter's 10.6 percent, as industry sales rose 2.5 percent to $4 billion, iSuppli analyst Betsy Van Hees said. Intel began 2003 with a 19 percent share and ended the year with 10.6 percent.
The company's share of the market slumped last year to fourth from first after customers balked at a decision by Lacey's predecessor to raise prices.
Barrett has charged Lacey with reclaiming its top ranking.
``We need to be No.1 overall. If not, we are marginalized,'' Lacey said. ``That's not a good thing if you are the world's largest semiconductor company.''
Sales of flash memory will grow about 49 percent this year, nearly three times the rate of other microprocessor sales, according to forecasts made this month by the Semiconductor Industry Association.
To become the market leader, Intel must surpass South Korea's Samsung Electronics, Japan's Toshiba Corp and Advanced Micro Devices. Samsung and Toshiba gained share last year in part because they made chips using a technology better-suited for the memory cards that store pictures in digital cameras.
Flash memory provided about 5 percent of Intel's $8 billion in sales in the first quarter, according to Van Hees' analysis. Intel doesn't give a breakdown of its memory revenue.
The company's sales growth, which has averaged 21 percent over the last three quarters, is forecast to slow to 9 percent by the fourth quarter, according to the average of 30 analysts' estimates in a survey by Thomson Financial.
Intel shares rose 22 cents to $27.60 yesterday in Nasdaq Stock Market composite trading; they have fallen 14 percent this year.
Intel focused on a kind of flash memory that stores software in cell phones, as well as raising prices. That cost Intel orders from phone makers such as Nokia and left it out of the market for set-top boxes, digital video recorders, printers and other home electronics.
In his office about a mile away from Intel's headquarters, Amir Mashkoori, general manager of Advanced Micro's flash-memory venture, said his product technology and customer relationships will fend off Intel's renewed charge.
"It's a lot nicer to be in a position to talk about actual performance instead of what we are going to do," Mashkoori, 42, said in an interview. "They come out and say `Here's a solution and the whole world has to adopt it because we're Intel.'"
Lacey said Intel is also working on products to compete in the fastest-growing market sector: storage of photos in digital cameras and of music files in MP3 players.
Samsung and Toshiba each took 20 percent of the market by producing a type of chip called NAND, which is cheaper to make than the NOR chips produced by Intel and Advanced Micro. NOR allows phones to read data more quickly than NAND, but is slower at writing large music and picture files.
NAND sales will jump 77 percent to $7.4 billion this year, iSuppli's Van Hees said. That's com-pared with overall market growth of 42 percent and a forecast increase of 25 percent in NOR sales.
"They need to be able to tap into the data storage market," she said in an interview. "That market has had explosive growth in the past and will continue to have robust growth."
Lacey said he can reduce the cost of his chips to compete with Samsung and Toshiba products.
"We are working like crazy because we have some catching up to do," Lacey said.
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