Intel's 2009 Bankruptcy: A Cautionary Tale

 

Yes, this is fiction, but it is designed to show a basic flaw in Intel's CPU strategy. Although I am personally thrilled about their new Nehalem lineup and expect to be one of the first in line to purchase one, the processor does have a very critical vulnerability... as you will see.

The Google New York Times

Intel Declares Chapter 11 Bankruptcy

November 13, 2009 - Washington, DC - The single remaining major personal computer processor manufacturer declared Chapter 11 today in what may be the largest technologies bankruptcy of the century.

In a letter to shareholders and the public, Intel CEO Paul Otellini explained that "global factors outside our control" forced the company to become insolvent, and that "all steps would be taken to satisfy creditors' demands and restore shareholder value." Intel (INTC) stock plunged to 37 cents by the close today leading a massive technologies selloff on the NASDAQ which brought the index to the triple digits for the first time in over fifteen years.

Intel promised to continue normal manufacturing of its processors although industry analysts wondered how and why the company would want to keep shipping product to an already saturated channel. Computer products distributor Ingram Micro CEO Alain Monie remarked that "we haven't shipped more than a couple of thousand Nehalem CPUs since last year's launch, so we certainly don't want to stock any more for the foreseeable future."

Intel's problems paradoxically began with the closure in November 2008 of its longtime rival AMD when the major shareholder, the Abu Dhabi based Mubadala Development Company, sued it into bankruptcy to sell off its assets. Although most companies would rejoice at the elimination of their only major competitor, Intel was soon hit by a double whammy of external events. In December 2008, Microsoft announced that due to fundamental flaws in the kernel code it had suspended development on Windows Seven, the long awaited successor to the troubled Windows Vista. Microsoft's announcement effectively stopped the ever escalating spiral of more powerful processors required to run operating system software that became more complex in each release.

The coup de grace occurred the following month when the Chinese military invasion and occupation of Taiwan sealed off the island nation's manufacturing capacities, eliminating the supply of its RAM memory units from the global marketplace. The remaining manufacturers outside of Taiwan dedicated their entire capacity to the DDR2 type of RAM units which are used in the vast majority of computers. Intel's Nehalem processor is designed to work only with the more advanced DDR3 RAM and as the supply dried up, the price for that type of memory skyrocketed to over $1,000 per Gigabyte, effectively eliminating most computer users from being able to afford a Nehalem based system.

Many industry observers had anticipated Intel's black Friday the Thirteenth announcement. The processor manufacturer had been roundly criticized late last year when it unexpectedly ceased the production of its extremely popular Core 2 series of processors to force users to upgrade to its new Nehalem chips. This was widely seen as the new monopoly in the processor manufacturing industry flexing its muscle in the absence of competitive pressures from the defunct AMD, but it turned out to be a fatal decision. By switching over all of its manufacturing capacity to Nehalem, the company's fortunes were irrevocably tied to the cost of DDR3 RAM. The Chinese military action against Taiwan had been foreseen for years, but Intel chose to take the risk that affordable DDR3 RAM would be available for its new processor, and lost.

Dan Hutcheson, an analyst at VLSI Research, blamed Intel's woes on fundamental arrogance in the boardroom. "When AMD went under, they felt they could eat up the world. It just so happened that the world bit back."

 

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Comments 21 comments

guidebaba profile image

guidebaba 8 years ago from India

Thanks for the NEWS !


Hal Licino profile image

Hal Licino 8 years ago from Toronto Author

Guidebaba, it may not be news yet, but maybe in about a year and a half!


Shadesbreath profile image

Shadesbreath 8 years ago from California

Interesting take. If it happens, you look like a genius. If not, this hub vanishes like all the doomsday predictions throughout the ages have done and you're not the worse for wear. I enjoyed this.


02SmithA profile image

02SmithA 8 years ago from Ohio

I think Intel has benefited quite a bit from having AMD as their main competition. AMD and competition doesn't fit in the same sentence. We will see if Intel can susatain their profitability!


Hal Licino profile image

Hal Licino 8 years ago from Toronto Author

Shadesbreath: Just call me NostrHaldamus! :)

02SmithA: AMD stock is currently at $4.32/share which equals a market cap barely above $2.5 billion dollars. That is about a tenth of what they were worth about two years ago. Every company needs competition but AMD is now at the point where they are a charity case, not a competitor. :)


IC_eng 7 years ago

This article is stupid. One key premise is that " it unexpectedly ceased the production of its extremely popular Core 2 series of processors to force users to upgrade to its new Nehalem chips." My take is that the author suggests Intel's factories were retooled to make Nehalem and doing so would be impossible to "retool" the factories. This is totally false. Both Core 2 (Penryn) and Nehalem are built using the SAME Intel 45nm technology. It would be VERY VERY easy to switch back to Penryn and pump out millions of chips that don't require DDR3. Intel would just go back making the NON-DDR3 chips. What a crack-pot.


Hal Licino profile image

Hal Licino 7 years ago from Toronto Author

Of course the 45 nm processes are the same, but in your haste to throw the crack out the pot, you fail to see that Nehalem was designed in a completely different age than the one it was released in, and that Intel's strategy would have been completely different if anyone could have forecast the current global economic disaster.


shirley 7 years ago

Trust, me thats not an issue, the stratgey changes every day, and we are still running lots of diffrent products, there are many factories all over the world and there is no dependance on one product. and the 45nm factories should be able to switch between all 45nm products. I work is in a factory that runs nearly all the 90 and 60nm products together.


WHoArtNow profile image

WHoArtNow 7 years ago from Leicester, UK

Interesting look at the future, made me laugh a little too! More companies are moving on to DDR3 now though, so I don't think that will cause a problem for Intel.


Hal Licino profile image

Hal Licino 7 years ago from Toronto Author

shirley, since you wrote that, Intel has shut down several fabs. Although they are most definitely nowhere near bankruptcy, things are not looking too peachy over at Big Blue.

WHoArtNow, DDR3 so far has proven to be an expensive upgrade which bears little noticeable performance difference. Although the Core i7s are set up for DDR3 alone, benchmarks on other platforms don't really show any cost-effectiveness.


Dino Ric BEndanillo 7 years ago

I think , if that's the case Intel is in the middle of the storm then AMD will gonna take a leap. In this situation AMD might get more profit because the affordability and quality of their products can eat more costumers because of 0this world crisis businesses needs an affordable gadgets


Hal Licino profile image

Hal Licino 7 years ago from Toronto Author

AMD? AMD? Are you talking about the same AMD that I know? The company that has spent the last couple of years turning itself into the ultimate IT laughingstock? There is absolutely nothing in the CPU lineup of AMD that is in any way cost-competitive performance-wise with Intel! Geez!


Benson Yeung profile image

Benson Yeung 7 years ago from Hong Kong

Let's hope that cautionary tales remain fiction.


Hal Licino profile image

Hal Licino 7 years ago from Toronto Author

Well, Core i7s are moving like molasses in January (even though I bought one... yet to arrive of course...) and Intel has postponed the launch of i5s so even though the actual reality of an Intel bankruptcy is quite remote, they are definitely not in good shape with their Nehalem rollout.


abasster profile image

abasster 7 years ago from Malaysia

I for one would buy a $900 AMD Dragon system over a pricey $2100 intel gaming rig with my eyes closed.


Hal Licino profile image

Hal Licino 7 years ago from Toronto Author

Why? Go Core 2 and get better performance for your money with the new Intel price drops. Unless you're just one of the (dwindling) few AMD blind evangelists! :)


abasster profile image

abasster 7 years ago from Malaysia

Intel Core 2 has better performance? Really? I doubt it against the AMD Phenom II X4 chip. Nonetheless, I'm the type that will consider any better value for money computer system. I won't blindly go the way of Intel. AMD Rocks! :-)


Hal Licino profile image

Hal Licino 7 years ago from Toronto Author

You're welcome to your opinion, yet if you check the benchmarks, even the most powerful Phenom II X4 barely holds its own against the midrange Q9400, let alone the Q9550 or the blazingly fast Q9650 which is now selling for close to $300. IMHO, anyone who buys AMD now (unless you already have an AM2+ mobo or similar) is making a big mistake.


comp3820 profile image

comp3820 7 years ago from Michigan

I think this is a highly improbably course of events, but I can see that there is a bit of reasoning behind this. However, Intel is a very stable company, with years of experience, and piles of cash, so IMO it could weather some pretty bad situations.

About AMD... All I know is that I have one of their first dual core processors, and its worked like a charm for several years. I didn't realize that they were as awful as you portray here.


Hal Licino profile image

Hal Licino 7 years ago from Toronto Author

Intel has a lot less cash now than it had, as the shrinking PC market has hit it hard. AMD's processors prior to Barcelona were quite good. But they were implemented before Hector Ruiz ruined the company.


latif tarsadfs 5 years ago

Thanks for the tip, SunSeven. The guy just cut and pasted it and it seems it was just a couple of days ago. What a total moron! The AMD Quad FX isn't even for sale any more! Theft of an article for no reason whatsoever. Isn't stealing great? :(

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