Break Up Intel!

NEW YORK ( TheStreet) -- I didn't start this blog to become the Intel ( INTC) desk.

But ever since I began writing for TheStreet, I have found myself pounding the table about Intel's problems.

I was very explicit about them on Sept. 18, but I found myself returning to the theme twice just this month, on Nov. 7 and Nov. 9.

What do I have against Intel, you might ask? Do I have a personal vendetta against the company?

Uh, no. I love Intel. It's the most important company founded in the second half of the 20th century -- more important than Apple ( AAPL) and Microsoft ( MSFT) combined, because the Intel microprocessor enabled both companies.
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But as I've previously noted, the 21st century is passing Intel by.

In an age of devices, manufacturers are demanding more control over design and a product's use than a merchant chipmaker can give them. Now there are indications that Intel's management is hearing the message, with the sudden decision by CEO Paul Otellini to retire three years before he has to, as Newser reports.

Did he jump, or was he pushed? Since Otellini took command in 2005 Intel shares have gone nowhere, and it has become a dividend stock with a current yield of over 4%. So probably it's a little of both. Otellini is a fine man, an excellent manager, but he's no visionary like Andy Grove or (God knows) Gordon Moore. Under Otellini the trains run on time, the budgets are met, the road map unfolds year after year like clockwork.

But that's not what Intel needs right now. I think both he and his board finally understand this, which is why the board is being given the chance to change that direction under a new CEO.

Trouble is, a new CEO alone won't get the job done. The heir apparent is COO Brian Krzanic, Techeye says, who comes out of the manufacturing side of the business, the "fab." Again, good man, with executive-style hair. But visionary?

So the board says it will consider candidates from both inside and outside the company. This tells me the company may be interested in the most feared, but most obvious move on the board.

Break up Intel.

Put Krzanich in charge of the fabs. Split manufacturing from design and marketing. Open up all of Intel's design resources to customization by customers. Go directly after the big fabless competitors -- like Qualcomm ( QCOM) and Broadcom ( BRCM) in communications, Nvidia ( NVDA) in graphics, ARM Holdings ( ARMH) in low-power design.

If Intel's fabs were separate from its design and marketing, the company could go after Apple's iPad chip business with a clear conscience. Apple is looking to get away from Samsung, with which it's fighting a long war over patents and a life-or-death one over device share. Intel's fabs could grab that contract and, at a stroke, that would more than pay for the whole deal.

Intel's problem is that it's too integrated. Its marketing team is devoted to selling only Intel designs, and are divorced from the real world of what customers do with its chips. Its designers are producing on a single road map for the foundry, and give customers a take-it-or-leave-it choice. Device makers of all types, facing such a choice, would just as soon leave it.

But what if that weren't the choice? What if customers were free to customize Intel designs, with Intel's help, and make them their own? What if Intel's hiring were aimed at finding people who could drive that software train, instead of just hardware guys?

Moore's Law is a roadmap, but it's just one road. What the chip business has shown, in this century, is that there are many different roads that can be taken. Intel has missed so many of them. I don't see what, save a break-up, can get it onto those multiple paths of profit.

At the time of publication, the author was long INTC but not nearly as long as he was a month ago.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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