Intel Throws its XScale Baby Out With the Bath Water (AMD, INTC)

Includes: AMD, INTC
by: Yankee Group

By Carl Howe

Intel (NASDAQ:INTC) announced on Tuesday that it is selling its XScale manufacturing business unit to Marvell (NASDAQ:MRVL) for $600 million. The reasons? Intel wants to reduce costs and focus on its traditional processor business. Said another way, it's saying, "Smart devices and cell phones that need long battery lives? Who needs 'em?"

The underlying issue here is that Intel isn't making the monopoly profit margins it used to, and it is embarrassed by the fact that much smaller Advanced Micro Devices (NASDAQ:AMD) is now making comparable margins. So it hopes to cut its way back to the old days when power-belching Pentium dinosaurs ruled the earth. Too bad global warming (or in the case of Dell (NASDAQ:DELL) notebooks, battery-fueled conflagrations) is going to make that impossible.

We're all in favor of companies that focus on their core competencies. But frankly, jettisoning the Itanium line would have saved Intel millions more than getting rid of Xscale. And with the sale of Xscale, Intel is forfeiting its only real play in the hundreds of millions of cell phones sold each year. This is one of those deals that gives up future growth for near-term profits.

And in case anyone didn't notice, AMD is running full-page ads in the New York Times claiming it is "The Smarter Choice." Not only is that a clear, clean message to buyers, but it indirectly is implying that buying Intel is dumb. Let's hope Intel's business deals don't prove AMD right.

INTC-AMD 1-yr comparison chart:

INTC-AMD 1-yr comparison chart

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Tagged: , Semiconductor - Broad Line
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