Intel turns 35: Now what?

For many in the computer industry, the title of Intel Chairman Andy Grove's 1996 book Only the Paranoid Survive came to symbolize the relentlessly competitive attitude that helped make Intel a dynastic success. Over three decades, Intel's fanatical focus on design and manufacturing excellence, and its big bets on blockbuster products have enabled it to dominate the microprocessor business and become a Silicon Valley legend.

But today, on the eve of Intel's 35th anniversary, a more apt title might be Only the Diversified Survive.

Faced with softening demand for faster microprocessors, the company founded by Robert Noyce and Gordon Moore in July 1968 is revising its playbook. Instead of betting heavily on a single next-generation product as it often had in the past, Intel is spreading its bets among several emerging markets and technologies, including 32- and 64-bit microprocessors, mobile device chip sets, and a raft of futuristic innovations.

"The good stuff is incredibly good," says Martin Reynolds, a Gartner vice president and research fellow, lauding the company's legendary 32-bit Pentium microprocessor products. "The challenge is they struggle to have anything other than processors be successful. It's a company that's trying to find that next big thing."

Of course, Intel is still one of the industry's strongest companies. Though revenues have been flat at $26 billion to $33 billion over the past five years, the company has $12 billion in cash in the bank and 13 state-of-the-art fabs (semiconductor fabrication facilities) worldwide, and it will spend roughly $4 billion on R&D this year, according to Intel's CTO Pat Gelsinger. The company is also poised to benefit from major enterprise trends such as the migration away from Unix to Linux on Intel.

Expanding Moore's Law

In a way, the enormity of Intel's success has created its current dilemma. From its scrappy start by a handful of Fairchild Semiconductor veterans and through numerous market transitions, the company established a pattern of quickly scaling up to massive production capacity for each new semiconductor product. It optimized yields, speeds, and quality, giving it a major cost advantage and making it the only vendor that could deliver huge quantities of the latest chips to high-volume OEMs.

Along the way, Intel established a culture of thinking big and betting big. "There's no opportunity to sit back and rest on your laurels," said Moore, the company's chairman, in a 1993 Intel brochure. On the contrary, the company continually invested in new factories and manufacturing processes that were the envy of the high-tech manufacturing world. "Intel has done a great job in process technology, and that's surely been fundamental to their leading the industry," says Michael Dell, CEO of Dell Computer.

But the success model has depended on an ever-increasing demand for microprocessor power, and today that demand seems to be flagging.

"They've hit some kind of limit in terms of how much performance they can sell," explains Gartner's Reynolds. "Processor volumes are continuing to grow, but the average selling price is dropping at the same time."

Reynolds partly blames a lack of CPU-hungry software. "We haven't seen major advances in software performance demands for several years now … to some extent Intel is still waiting for a new generation of software to come along," he says.