It seems counterintuitive, but Intel (News - Alert) currently is in the midst of converting its plant in Dalian, China, so it can make memory chips instead of semiconductors. Memory chips are low-margin, and some predict there will be oversupply in the next couple years.
The reason that Intel is shifting some of its production facilities away from semiconductors is because that part of the business isn’t doing so hot lately; Intel’s client computing group, which includes PC and mobile chip sales, fell 7 percent last quarter to $8.5 billion annually, and operating profits declined 20 percent to $2.4 billion.
Much of this loss comes from slumping PC sales the last few quarters and the heavy subsidies Intel offers mobile device manufacturers to avoid lost market share to its mobile semiconductor rival, ARM (News - Alert).
More promising right now is Intel’s nonvolatile memory sales for the Internet-of-Things (IoT) and data center use, which was up 19 percent on an annual basis last quarter.
Neither IoT nor data center demand will slack anytime soon, which should keep Intel’s memory chip sales humming along. Further, Intel’s planned acquisition of field programmable gate array (FPGA) manufacturer, Altera (News - Alert), and its partnership with flash memory maker, Micron, could dovetail nicely with its memory chip play.
That’s because Intel and Micro have started producing a new class on nonvolatile memory, 3D XPoint, which is supposedly up to 1,000 times faster than existing NAND memory technology. Altera, for its part, makes FPGA that use flash memory and are reprogrammable after they are shipped, which is useful for application deployment scenarios and could complement Intel’s Xeon processors in the data center.
Taken together, these two firms can help Intel win the memory chip battle and help explain why a semiconductor firm is switching production to memory chips and away from its bread and butter product lines.
The memory chip market is due for a shakeup, and only big firms with deep pockets for research and economies of scale will be left standing. Intel is positioned well for this both based on its size and the technology already in its hands.
So maybe memory chips don’t sound so crazy after all for Intel.
Edited by Rory J. Thompson