Intel Incommunicado

Apparently, Intel (Nasdaq: INTC  ) CEO Paul Otellini was entirely serious when he said in April that everything was on the table in a then still-developing restructuring plan. For starters, the company will cut more than 10,000 jobs through layoffs, attrition, and divestures.

Add 120 former employees to the list. On Friday, the chip maker sold the bulk of its optical-networking operations to CortinaSystems for $115 million, according to press reports.

While likely smart in the long run, the sale must be embarrassing for more than a few insiders. Intel built the unit, which supplies processors for telecommunications and digital networking devices, primarily through a $2.2 billion buyout of Level One in 1999.

But the business never really took off. And diversification no longer makes sense, according to a statement from Bill Chatwell, Intel's general manager for the optical-networking group. "We're honing Intel's focus in the communications and embedded market segments to align with our core businesses."

In other words, Intel is ... well, I don't know. Sure, everyone not living in a cave is aware that it derives the bulk of its revenue from sales to PC and server makers such as Dell (Nasdaq: DELL  ) , Sun Microsystems (Nasdaq: SUNW  ) , IBM (NYSE: IBM  ) , and Hewlett-Packard (NYSE: HPQ  ) . Less clear is where future growth will come from, especially if, as suggested, the PC market is in the midst of what could be a protracted slump.

Hopefully, Otellini will soon tell investors exactly what he expects the new Intel to be. In the meantime, I wonder if he's taking a page from former IBM CEO Lou Gerstner, who in the '90s determined that it wasn't in IBM's best interest to be in as many businesses as it was at the time.

Most famously, Gerstner shut down nearly all software development after the OS/2 operating system failed to seriously challenge Windows. More recently, current CEO Sam Palmisano sold the PC business to Chinese manufacturer Lenovo while preserving the ThinkPad brand name.

What's to stop Intel from doing something similar? Couldn't Otellini sell entire platforms built around an ecosystem of Intel PC and server chips with certified partners? I don't see why not. Heck, he's already got three in Cortina, Eicon Networks, which purchased the communications business last month, and Marvell Technology (Nasdaq: MRVL  ) , which bought the telecom unit for $600 million in June.

Frankly, it's nice to see Intel taking action. Rival Advanced Micro Devices (NYSE: AMD  ) has been chipping away at its core business for too long. But cuts -- even $5 billion worth, as Otellini has planned -- won't do much if not accompanied by a strategy for growth. So far, I haven't seen one. Paul?

Allow us to chip in with related Foolishness:

Intel and Dell are Motley Fool Inside Value selections. Ask us for anall-access passto the service and you'll be privy to chief advisor Philip Durell's best picks, which collectively are beating the market by more than 4% as of this writing. You'll also receive instructive lessons on valuation and company analysis. Give Inside Value a try. It's free for 30 days.

Dell is also aMotley Fool Stock Advisorpick.

Fool contributor Tim Beyers gets in the mood for Mexican food every time he writes about chips. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. Get the skinny on everything Tim is invested in by checking his Fool profile. The Motley Fool's disclosure policy is as thick and juicy as a great salsa. Yummy.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 515846, ~/Articles/ArticleHandler.aspx, 10/26/2014 5:39:55 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement