At Intel, Everything's Considered on the Table

A Memorable Year

Although Intel notched its highest sales ever last year at a whopping $38.8 billion, 2005 is unlikely to be remembered as a banner year.

Manufacturing missteps left Intel unable to supply enough of the chipsets that it sells alongside its microprocessors, and it watched as smaller rival Advanced Micro Devices(AMD Quote) grabbed the technology-leadership crown, thanks to AMD's energy-efficient, dual-core processors.

As a result, Intel's share of the worldwide PC microprocessor market fell from 81.6% in the first quarter of 2005 to 74.3% in the first quarter of 2006, says Mercury Research. Also, Intel is now aggressively slashing prices on its microprocessors to reduce inventory glut.

The reaction on the Street has been unequivocal. Intel stock, which closed at $17.79 Tuesday, is trading at its lowest level in more than three years.

But Intel hasn't been idle; it unveiled a significant brand redesign and is on the verge of releasing a trio of new processors the company claims will recapture some of the lost market share.

Mission Accomplished?

The most anticipated development for many investors involves the internal changes Intel's management is expected to outline in coming weeks and months.

Atlantic Trust Stein Roe analyst Fred Weiss estimates that about 15% of Intel's revenue doesn't make any money. Detecting the hemorrhaging organs can be tricky, as Intel folds its disparate chip lines within larger operating segments. Weiss says Intel's 2003 annual report (when the company last reported financial results under a different format) provides an instructive reference.

Although Intel's PC microprocessor business earned $10 billion in operating income on $26 billion in revenue that year, the communications group lost $426 million on $2.1 billion in sales.