Analysis The latest in a line of profit warnings from chip giant Intel was re-inforced when Cisco, too, announced its profits were unlikely to be as favourable as expected and announced it would slim its corporate butt by letting excess weight (staff) go.
Although, at first sight both firms appear to have a dissimilar profile, there is more in common between Cisco and Intel than meets the eye.
Both run large vulture (venture) capital arms which had, until quite recently, seen big returns from investments in startups and technology firms.
Both technology firms are also seen as bellwethers for the state of the US economy, and the warnings they issued last week mean that a recession is more, rather than less likely.
But, more optimistically, both firms are so integral to IT that their long-term future is more or less assured. If not, then the whole world may as well dump all of its computers in a land fill, and the corporate world may as well go back to hiring armies of clerks and start using the abacus again - something that's unlikely to happen.
The size of investments Intel makes in companies, and the profits that it has reaped from them is little known and the PR division of Chipzilla is content to keep it that way.
The investments may be gauged by going to the Intel Capital site and looking at the portfolio it holds.
While the US stock market was bullish, Intel reaped considerable sums from its VC investments but as the market has become more bearish, the profits reaped from its portfolio have lessened. Profits from this wing of Intel have, in a series of consecutive quarters, been used to conceal problems with its microprocessor lines, variously described as "tightness", and "lack of demand", but, in reality, linked to production problems, misjudgements, and a series of gaffes from the i820 "Caminogate" fiasco to the launch of the Pentium III Coppermine family.
Are you being servered?
But the problems with its desktop microprocessor family are seemingly unrelated to the latest warning Intel delivered last week.
These are related to a real lack of willingness of multinationals to buy Intel's server chips - processors which deliver far more profit than desktop chips - and suggest that corporate America, in particular, is unwilling, right now, to dig into its pockets and invest more in infrastructure.
Intel's family of IXA products - what we call Intel Mycelium here at The Reg - took shape about three to four years ago at the corporation, and was a wise attempt to diversify away from the microprocessors that everyone associated the company with.
This line of products was aimed fairly and squarely at competing with firms like Cisco and others, and it cannot be good news for Intel that its networking competitor is now showing signs of the jitters too. So, in the short term, IXA looks unlikely to pull Intel out of its current black hole.
Nor will the Itanic and McKinley chips, certainly in the short term and possibly in the long term either, provide Intel with the sort of gravy train profits and margins it is used to.
Do you think my butt looks too big in this?
Intel's chairman, Andy Grove, was sanguine about the current downturn in the technology sector when he was interviewed last week.
He points out that the industry has been here before, and that the last thing Intel should do is to lose its nerve, for example by slashing capital investment or R&D.
While we regularly cover possible alternatives to Intel or rather x86 microprocessors in The Register, none of these appear to have a particularly rosy future. Intel has its eyes on destroying Sun's marketshare, the DEC Alpha chip is confined to high end ghettos, HP is still, long-term, committed to the Intel IA platform. Has IBM gone away? It's years since we heard from Big Blue what it's up to on this front.
All these companies are frightened of Intel's eventual incursion into their end of the market, and aim to conceal it with bluff and bluster. What frightens them far more than technology is Intel's ability to undermine them on prices and partnerships and to market them to death.
AMD still has to be considered, despite its recent successes, as riding on Intel's x86 coat tails, but we were interested to read last week that the Wall Street Journal reckoned that AMD might be a sounder share investment than INTC, at least in the short term, because of its different profile.
While the share prices of Intel and AMD cannot be directly compared because of the number of shares issued and the rest, it must, however, be deeply worrying that, as we write, Chipzilla's price stands at $28.93, only a few dollars more than Chimpzilla's $22.54. That looks bad.
Yeah, we know that the total value of INTC shares is nearly $200 bill and AMD about $7 bill and that Chipzilla is 27 times bigger than Chimpzilla. It just looks bad, OK?
Just six months ago, such closeness would have been inconceivable. ®