Crossroads

At the intersection of technology, finance and the Pacific Rim.

Thursday, May 18, 2006

We move from semiconductors to telecom next week--ultimately a key theme of the class is about the triangular relationship between networks, devices and content. There is an interesting interview with Terry Semel, CEO of Yahoo on video. I encourage you to take a look. It is a good warm-up to understanding the Google phenomenon which we will be covering later in the course. He talks of the importance of search and advertising; their relationship with Google in the early years and how Yahoo tried to buy them.

From yesterday's session, I hope each of you comes away thinking in more cyclical ways. These cycles are important for taking action (or not) in everyday business decisions. Ultimately business is a step by step move where actions should be plotted out (my opinion) in light of various anticipated event scenarios. And the cycles have much to do with this plotting. From Paul Otellini's presentation you should have noted the micro-architecture cycle--the fact that it took four years for them to refresh their microprocessor core; their technology cycle which has been happening with a regular occurrence every two years; the product cycles (all based on the upcoming new micro-architecture, which are all in the process of being refreshed; their working capital/production cycle which got out of synch with their demand, resulting in excess inventory. And the criciticism of the Company continues as this WSJ article below shows:

Intel Shareholders Voice AngerOver Chip Firm's Sagging Stock
By DON CLARKMay 18, 2006; Page B2
Intel Corp. management received some harsh questions from shareholders about the chip maker's sagging stock price.
One questioner at the company's annual meeting went so far as to suggest that Intel take a page from Hewlett-Packard Co., whose results and stock price have improved dramatically since it brought in Mark Hurd to succeed Carly Fiorina as chief executive.
"I suggest that someone ought to be fired in Intel," the stockholder said during the meeting, held near the company's headquarters in Santa Clara, Calif. "My question is who?"
Craig Barrett, Intel's chairman, conceded that the company's recent financial results and stock price have been "unsatisfactory." But he argued that a more reasonable form of "punishment" for management would come in a reduction in bonuses and stock-based compensation for 2006.
Paul Otellini, who became Intel's CEO a year ago, received a bonus of $2.68 million in 2005, nearly double the $1.36 million he received the prior year, according to the company's proxy statement. His base salary rose to $608,300 from $450,000, and was set for this year at $700,000. He also received stock-based compensation awards valued at $5.9 million, up from $3.3 million in 2004, the filing states.
Reed Hundt, an Intel director who is chairman of the compensation committee, told shareholders that Mr. Otellini's pay fairly reflected the company's earnings growth in 2005. But he stressed that compensation will vary with the company's performance.
Intel's stock, which traded at more than $34 in early 2004 and ended 2005 at nearly $25, has been pushed down lately by the company's slowing growth and market-share losses to rival Advanced Micro Devices Inc. Amid a widespread decline on Wall Street yesterday, Intel shares fell 40 cents to $18.66 in 4 p.m. composite trading on the Nasdaq Stock Market.
Mr. Otellini gave a presentation and discussed the company's plans to make its product line more competitive, as well as an internal study to make the company's internal operations more efficient. But he conceded that many analysts are waiting for signs that Intel's actions are having an effect.
"In the aggregate, they all said 'show me,' " Mr. Otellini said. "Talk is cheap."

8 Comments:

Blogger Jo, Tae Jin said...

I also want to draw attention to the following article for the classmate, which I think is related to the last class covering competition of Intel.

"Dell to Use AMD Chips In Some Servers"

By DON CLARK and CHRISTOPHER LAWTON
May 19, 2006, WSJ.Com

According to the article, Dell announced it will not stick to the Intel processor anymore, and it is going to adopt AMD for its products.

After the announcement the stock price for the both Dell and AMD slightly rose up.

As AMD's market share is increasing a bit by bit, I think Intel faces serious competition which has been furthered by Dell's decision to use AMD chips for its high-end servers.

If anyone want to read the article but don't have access to it, please e-mail me (taejin.jo@gmail.com) so that i can send a copy of it.

12:52 PM  
Blogger Jinwoo IM said...

The story about meeting Terry Semel and Google founders was so interesting. I didn't know the story until now.

4:03 PM  
Blogger Jinwoo IM said...

But, I'm somewhat wondering why he is underevaluating the power of 'Google'. Is it a kind of rhetoric? OR Is he really believing that the Internet industry will change like Korean (and Taiwan) situation? Well... Some Korean representative search sites are also saying like him...

4:24 PM  
Blogger LeftBack said...

The big take-away from Ken Auletta’s interview with Terry Semel was that Yahoo is not so much an IT company as it is an advertising company. Semel, who himself comes from the TV world, stated that Yahoo is fundamentally about aggregating content and selling advertising on a CPM basis. Yahoo’s ad business can be divided into two main categories: the monetization of search advertising and graphical advertising (Yahoo is the world’s largest graphical advertiser for the Internet).

At first blush it seemed to me strange that an ostensibly tech company would hire an ad man but after Semel re-framed the business model of Yahoo for me it made perfect sense. Lou Gerstner, whose job before IBM was in the tobacco business, already proved that the business fundamentals driving tech companies are not much different than those of any other industry.

As an aside, Semel mentioned a new form of search developed right here in Korea. Called a “knowledge” search, it involves having people refine searches instead of machines. I had no idea this existed until Semel’s interview so I asked my secretary about it. Sure enough, Naver.com has a button that allows you to search for a topic with the assistance of others on the net who help refine your search. Yahoo has run with this idea in Taiwan and India with great success. Yahoo’s version is called “Answers.”

On the subject of Intel’s falling stock price, my response to analysts calling for the head of Paul Otellini is to quote Clayton Christensen from chapter one of The Innovator’s Solution:


The solve-the-problem-by-finding-a-better-manager approach might have credence if failures to restart growth were isolated events. Study after study, however, concludes that about 90 percent of all publicly traded companies have proved themselves unable to sustain for more than a few years a growth trajectory that creates above-average shareholder returns (7).


The problem at Intel is that their core business has matured, and like all such businesses, they have experienced a plateau in their rate of innovation. Yes, they are innovating at a constant rate, but the problem is, as Christensen points out, that “canny horde of investors not only discounts the expected rate of growth of a company’s existing businesses into the present value of its stock price, but also discounts the growth from new, yet-to-be-established lines of business that they expect the management team to be able to create in the future.”

Sadly, for Otellini, I do not predict a dramatic change in the share price for Intel for exactly the reason outlined above. In order for Intel to improve, they will have to resolve the systemic obstacles to disruptive growth, including removing the career risks to managers who champion ideas that may not have short term gains and may also only appeal, in the short run, to a small demographic.

2:09 PM  
Blogger Honungsklubba said...

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3:06 PM  
Blogger Honungsklubba said...

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3:07 PM  
Blogger Honungsklubba said...

I want to give you guys a heads up, from a technical point of view.
When you mentioned that the microprocessors are no longer considered as the only engine in the in the computer, but has to work on the same page as the memory modules (as better compatibility in delivering 99% performance) in order to be produce efficient output.
You just helped me answered the one million dollar question, why AMD CPU is so difficult to configure (2-3 years ago) compared to INTEL CPU.
I’ve been working with both AMD and INTEL CPU for some time and the toughest problem is the configuration. The configuration s not an easy task, the hardware and software need to be fitted in order to get the most out of an AMD system. I knew that AMD outperforms INTEL in any ways.
Imagine – Try to assembly a 3 digit lock system with different brand components. The digits are the software, there are 999 combinations and only one combination is correct. It is not that hard to find the combination (simply speaking), but it is troublesome to test every combination until the lock is released, even though the combination is correct, the hardware might be the bad guy in scenario. You have to find the hardware problem and then retest the combination… again. That is truly how AMD works. Assemble a INTEL system has always been a walk in a park. It is fairly easy to locate a problem if it occurs.
Make a long story short, my previous thinking of AMD’s silly-tiny problem was a result of imperfection, that AMD was unable to produce a CPU that is fully compatible and that did not require any configuration. Whilst INTEL was just so user friendly…
Looking at the big picture, AMD is much more product orientated – aiming towards efficiency, whilst INTEL is customer orientated – making the product easy to assemble.

That might be reason why AMD never actually took off at some point. They delivered a product that was well beyond the comprehension for a consumer to understand at the time.
I knew however that AMD was superior and faster than INTEL, but because of the difficulties to make it work smoothly, it was not worth the time or money to invest an AMD for both customers and myself.
Therefore I never favoured AMD up until now.

3:08 PM  
Blogger Stan Sakai said...

Very provacative comment above regarding the technical difficulties of an AMD processor. And appreciate it. Thanks,

6:26 PM  

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