Last Updated May 4, 2011 4:48 PM EDT
Not that Intel earnings have done badly. On the contrary, the company continues to outperform expectations. (You'd think that analysts would start to add the Intel Fudge Factor, assuming that they're being stonewalled.)
Simon says, don't move
However, Intel's business-as-usual story is one that would eventually have an unhappy ending. Consumers are changing their habits and quickly taking to smartphones and tablets. As a result, PC sales continue to slow, which explains the hammering of Microsoft's Windows client business. Although PCs and servers aren't Intel's only businesses, they are the big ones.
Reduce the number of PCs that sell and you reduce Intel's income. Intel has been behind in mobile as smartphones and tablets increasingly turn to the company's competitors for chips. ARM architecture has become a popular choice.
However, Intel is tops in sophistication of semiconductor manufacturing. The industry has constantly sought to reduce chip size (called a geometry) to pack more transistors in a single device. That trend led to the famous observation of increasing computer power and falling price called Moore's Law -- named for Intel co-founder Gordon Moore.
Let's get small
Chip companies push to smaller geometries for a number of reasons:
- The smaller the chip, the more devices you can get from a single silicon wafer, which makes the manufacturing process more economically efficient.
- The smaller the geometry, the more capabilities you can build in, which creates new products that command a premium price.
- Consumer electronics manufacturers must constantly bring more features to their customers. That requires chips that can do more.
- Greater integration on chips helps drive down costs of electronics goods, and so manufacturers make more money.
Intel will achieve this with a 3D transistor layout, rather than the single layer approach that everyone else uses. Although the industry has discussed the possibility of 3D architectures for decades, actually achieving this in a CPU could keep the company at the head of the pack for years.
Smaller chips with greater integrated functions and lower power consumption is exactly what the mobile industry craves, and Intel says that it will get performance and power consumption improvements greater than ever before. This could give Intel a real mobile boost. It put into context rumors that Intel might provide contract manufacturing of processors for Apple (AAPL). Intel has put itself back on the mobile map, and will likely give executives at ARM, AMD, Samsung, and other chip manufacturers some sleepless nights.