Intel Corporation (NASDAQ:INTC) is set to name the new CEO next month and whoever will fill the post will have to face the company’s biggest challenge in the past 30 years, reports Forbes.
The PC sales, which have been the strongest source of Intel Corporation (NASDAQ:INTC)’s revenue, declined 13.8 percent in the first quarter and for the straight tenth quarter. The revenue and profits of the company will be hurt by the decline in sales. The company should make an effort to increase its manufacturing process.
Intel Corporation (NASDAQ:INTC) has opened up more factories that are engaged in manufacturing 22 nanometer processors and is transforming and getting ready for 14 nanometer chips. The company will face the worst time once the industry standard 300 millimeter wafers are replaced by 450 millimeter diameter wafers in the next four to five years.
The chip maker under this situation could opt for diversification and should make communication chips. The company recently announced that it will manufacture set top boxes for customers to stream content in their homes. But it is stepping in the territory of Netflix (NASDAQ:NFLX), and there is no novelty in the idea. The customers and partners are reluctant to team up with Intel (NASDAQ:INTC) on the project, and projects like these cannot end up successfully due to scarcity of resources.
The other road that the company can travel is to become a contract manufacturer like TSMC. If the company adapts this strategy, it will be able to utilize its excess factory capacity. The company has already initiated a step in this direction and has signed an agreement with Altera.
So, what should the company do? There are internal problems with each of the options that it chooses. Foundry idea has been criticized by many executives, including CEO Paul Otellini on various grounds.
Intel Corporation (NASDAQ:INTC) could consider an option of a split up. Once the company is split in to two, the new foundry company can serve the customers like Apple Inc. (NASDAQ:AAPL), Qualcomm, Inc. (NASDAQ:QCOM), and Cisco Systems, Inc. (NASDAQ:CSCO), even ARM. These all are huge companies and also require the products in massive quantity.
There are, however, some potential threats to the split up. Once the split up begins it could be rough and very time consuming. Moreover, there will be a substantial delay in the availability of the products. Even after the split there is every chance that customers may lack faith in Intel Corporation (NASDAQ:INTC).
It is possible that manufacturing group may outperform the newly formed chip design company. The Intel can fall to the same fate as of AMD, which initiated the idea. The spin off could not do anything much better for HP.
Intel Corporation (NASDAQ:INTC) has taken some big steps before, which were successful, like in mid 80’s, it transformed from memory maker to a process manufacturer. It faces a similar situation now, a situation that requires massive changes. But the question is what and how will it respond.