At Intel, Everything's Considered on the Table

Flash memory, which plays a key role in new consumer electronic devices, provides a good example of some of the tradeoffs Intel is grappling with.

Last November, Intel inked a joint venture with Micron Technology(MU Quote) to manufacture NAND flash memory chips.

Intel's main flash memory efforts prior to that deal, however, have focused on NOR flash, a technology that's growing at a far slower pace than NAND and one that has a track record of operating losses at Intel.

Although jettisoning the NOR flash business might seem a no-brainer, the CEO of Neuberger Berman Technology Management, Dan Niles, says the flash business needs to be viewed holistically.

"They use NOR flash like they use chipsets: to fill up older fabs," says Niles, whose firm has a position in Intel.

"The worst thing in the world is to have a fab with no products in it -- you've got all the expense and don't have any revenue."

Speaking to reporters in Malaysia last month, Otellini maintained that Intel wasn't planning to get rid of the flash business.

Whether Intel ultimately opts to sell, spin off or merely scale back investments in various chip lines remains to be seen. But some investors say that focusing on pruning money-losing chip businesses doesn't address Intel's fundamental problem: its declining competitiveness in the PC microprocessor market.

With roughly 100,000 employees and multiple microprocessor design centers around the world, many analysts say there is plenty of redundancy at Intel. Additionally, the fact that AMD spent about 20% of what Intel did on R&D in 2005, to no apparent detriment, has not been lost on investors.

Intel has recently set an aggressive agenda of introducing a new chip microarchitecture every two years, which will require significant R&D resources; without the distraction of other chip businesses, Intel's microprocessor products could benefit from the extra attention.

"When you look at Intel's overall revenues and you see that 90% comes from these x86 processors and 115% of the profit comes from them," says Brookwood, "then you really want to make sure that that story is intact before you worry about how you're gong to diversify to protect yourself for the future."