Editor’s note: Russ McGuire is the online director of Business Reform Magazine. Each issue of Business Reform features practical advice on operating successfully in business while glorifying God.
Moore’s law has driven much of our economic growth for over three decades. Although not as trustworthy as the laws of nature or the laws of God, this law of technology advancement has proven surprisingly accurate and shows no sign of failing in the foreseeable future.
The same cannot be as confidently stated for Gordon Moore’s other hugely successful creation. With the continued push of its newest microprocessor architecture, Itanium, Intel Corporation may be setting a course that could sink the company.
Intel has described Itanium as “the most significant advancement to the Intel? architecture since the 80386” – and they may be right. The 80386 came at a critical juncture in the PC product lifecycle, as demand for PCs dramatically increased, and as the rapidly improving performance of personal computers played catch up with the increasing sophistication of software being developed for them. Intel’s 80386 architecture was a critical component in the company’s ability to establish it’s dominant leadership position through the 1990’s and into the beginning of this decade. The 80386 architecture was extended with the 486 processor family, and then again with the Pentium processors. And now, Itanium represents another leap forward. However, that leap may prove to be a fatal miscalculation by Intel.
You see, Moore’s law works in two dimensions. As most commonly explained, it states that the amount of processing power doubles every 18 months while the cost stays the same. However, a second truth of the law is becoming much more important, namely that the cost of a given amount of processing power is cut in half over that same year and a half period.
There are other truths that come into play in determining Intel’s future, none of which are as neatly measurable as Gordon’s famous law, but perhaps each is more important. For example, although the unit costs of processors stay relatively constant from generation to generation, the startup costs increase dramatically. Also, the electrothermal properties of a processor are a function of the processing power – in other words, a faster processor requires more electrical power and generates more heat.
All of that leads to the fundamental survival issue surrounding Intel’s continued pursuit of faster and faster chips. Intel has placed a huge financial bet that there will be proportionally huge demand for microprocessors that are dramatically faster but that also consume dramatically more power and produce dramatically more heat.
In reality, demand is likely to move in a different direction. As microprocessors get built into an increasing array of objects, most notably mobile devices, the real demand will be for Pentium or less capabilities at lower cost with lower power consumption and broader operating environments. None of these requirements match the Itanium.
Fortunately for Intel, the company also happens to have a broad portfolio of lower powered products racing down the cost curve that may well meet this real demand. And wisely, company executives have set expectations of reduced demand for flagship products and are reducing their capital investments accordingly.
However, the real question of survivability rests on whether the company can once again redefine itself. Intel’s ability to achieve huge financial performance during the 1990’s was driven by its ability to be the undisputed leader in providing the faster and faster chips consumers were demanding in their PCs. Can Intel establish and defend a similar leadership position with demand now focusing on cost and mobility? Or will Asian semiconductor companies steal that leadership away, and with it, Intel’s ability to prosper.
Intel’s handling of Itanium likely will tell us the answer.
Russ McGuire is Online Director for Business Reform. Prior to joining Business
Reform, Mr. McGuire spent over twenty years in technology industries, performing various roles from writing mission critical software for the nuclear power and defense industries to developing core business strategies in the telecom industry. Mr. McGuire is currently focused on helping businesspeople apply God’s eternal truths to their real-world business challenges through Business Reform’s online services. He can be reached at [email protected].
