Late last year, Intel (NASDAQ:INTC) hired veteran graphics processor architect Raja Koduri to run the development of all of the company’s core intellectual properties, including processor cores and graphics cores. These technologies are the lifeblood of Intel’s product efforts, and Koduri’s role within the company can’t be understated.
Then, back in April, Intel announced that it had hired processor architect Jim Keller, another industry superstar who has influenced and shaped many successful processor designs. Keller is running the company’s system-on-a-chip development efforts.
If you take a long-term view, Intel bringing these two individuals on board is a huge positive. First, these individuals are among the best in the industry at what they do, so having them drive Intel’s product and chip technology efforts should make Intel’s products much more competitive over the long term.
Next, Intel hiring these individuals and putting them into positions of power means that the chip giant is beginning to realize that chip design and architecture is far more important than chip manufacturing technology alone. Chip manufacturing technology, in my opinion, is a canvas upon which great product designs are crafted, but it’s not an end in itself.
All of this sounds extremely positive, so why does the headline of this article read negatively? Allow me to explain.
Chip pipelines are long
Developing a chip takes a long time. The development cycle is often on the order of four years to go from conception to a finished product ramping into mass production. That schedule can be longer if hiccups in design or manufacturing get in the way (and, for Intel, the latter has been a problem for many product generations).
What this means, then, is that whatever Koduri and Keller build from the ground up won’t make it to market until roughly 2022.
Now, that in itself isn’t necessarily a bad thing — after all, Intel builds pretty good chips today and they clearly have some improved products and technologies in the pipeline. However, the fact that Intel’s top brass saw the need to replace the individuals that they previously had working on these technologies with outside hires tells me that the product pipeline that’s currently in flight isn’t as exciting as Intel wanted it to be.
That, to me, signals that Intel’s product releases over the next couple of years might not be as strong as they need to be.
Show me, Intel
I think the best way for Intel to shore up investor confidence in its near- to medium-term prospects is to host an event or a series of events detailing its product plans and product strategy. More importantly, Intel needs to lay out a good case for why it expects to maintain product leadership in the segments that it participates in and that its business heavily depends on.
The reason it’d be a good idea for Intel to make that case is that, ultimately, Intel’s revenue and gross profit margin depend substantially on the company’s ability to deliver best-in-class products. The more competitive the company’s products are, the more likely it is that it’ll be able to sustain its high market share in those segments while also keeping its gross profit margins at high levels, ensuring the level of profitability that Intel stockholders have come to expect.
I think that as long as Intel can get its manufacturing issues sorted out, the foundation that Koduri and Keller are going to lay over the next several years could be far more robust than what Intel had before, leading to a stronger, more competitive company.
The question for me, then, is whether what Intel had in the pipeline before these two individuals came aboard is enough to allow the company to continue to deliver solid business performance while that new foundation is built. The next few years will bear out the answer to that question.
Ashraf Eassa has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.