If it can’t double our money, we’re not building it, Intel Products chief says

New products must show potential for 50% gross margin to get the greenlight

Mounting losses and financial turmoil has Intel cutting the deadweight, an effort that won’t end with axing staff.

Going forward, any product the x86 giant isn’t absolutely sure can manage a 50 percent gross margin isn’t getting off the drawing board, Intel Products CEO Michelle Johnston Holthaus said during Bank of America’s global technology conference this week.

In other words for every dollar spent building the chip, the product teams needs to show that it’ll bring in at least $2 in revenue to get the green light.

Holthaus emphasized that while Intel has neither committed to nor forecast 50 percent gross margins, that’s what the company should be aspiring too.

“That's the expectations that our shareholders have; that's what our competitors can do; there's no reason we can't do it,” she said.

In Q1 Intel’s gross margin had slipped to 36.9 percent, a far cry from the 60-plus percent gross margins from a few short years ago. By comparison, AMD’s gross margin during the quarter was 50 percent, while Nvidia’s came in at 60.5 percent.

This requirement is “something that we probably should have had before, but we have it now,” Holthaus said. “You actually don't get engineers assigned to it, if it's not 50 percent or higher gross margins moving forward.”

Achieving this, Holthaus said, won’t be easy and won’t happen overnight.

“I think our future products can all get there. I think really what it comes down to is you have to have a lot of discipline in your product life cycle, planning to build products from day one that hit that,” she said. “There's no reason we can't do it, but there's some things that we have to change internally.”

One of the ways Intel hopes to do this is by avoiding having to issue new “steppings” – minor chip redesigns that fix issues after production begins.

“Every stepping costs a significant amount of money, and so we needed to be doing a lot more upfront silicon validation prior to tape ins,” Holthaus said.

Design and product teams that can’t meet this requirement may find themselves out of a job. During Intel’s Q1 earnings call in April, newly minted CEO Lip-Bu Tan detailed his plan to streamline the company’s operations.

"There is no way around the fact that these critical changes will reduce the size of our workforce," he said at the time, adding that these changes will begin this quarter and continue over the next few months. ®