Facing a market glut of microprocessors and weak corporate demand for PCs running Microsoft's new Windows Vista OS, Intel hopes to stay profitable by producing new chip designs faster than its competitors, Intel chief executive Paul Otellini said.
"There's clearly more capacity to build microprocessors than there is demand in 2007, and probably in 2008," Otellini told financial analysts at the Morgan Stanley Technology Conference in San Francisco.
To decrease the impact of a head-to-head processor pricing war with rival AMD, Intel must return to the quick development habits it used when producing its Pentium family of chips, Otellini said. Intel backed off that pace after producing the Pentium 4, and soon began to lose market share when AMD launched the Opteron chip in 2003.
"We're doing product refreshes every two years, which is the model we invented, and then stopped doing after Pentium 4, shame on us," Otellini said. "We fell off it - mea culpa, we screwed up - and now we're back on that pace."
The company has announced a plan to upgrade its processor architecture and shrink its transistor geometry in alternating years. That puts Intel on schedule to upgrade its 65-nanometer Core 2 Duo processor to a ‘Penryn’ 45nm geometry chip in 2007. The following year, Intel will upgrade its Core microarchitecture to the new ‘Nehalem’ model, and in 2009 shrink those chips to an even smaller, 32nm scale.
That strategy will allow Intel to preserve its dominant market share in the processor industry, which has swung in the past 15 years from a low of 72 percent to a high of 87 percent, Otellini said. "Staying in that range is our modus operandi, and the higher end of that range is better than the lower end," he said.
Excess production tends to force chip prices down, so Intel needs a way to convince buyers it has a unique product. Even in a market glut, customers will continue to buy the top chip in each category, Otellini said. The company plans to do that with its technology platforms, including Centrino for wireless notebooks, vPro for business desktops and Viiv for home media centre PCs.
"In terms of pricing, it remains very competitive. But we believe you can show differentiation through platforms. Platforms like Centrino can insulate us from the commoditisation of the notebook, just as vPro can insulate us from the commoditisation of the desktop," Otellini said.