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Comms chips

Intel Dumps Dialogic

The sell-off of Intel Corp. (Nasdaq: INTC) businesses continued today, as the company sold the former Dialogic to Eicon Networks Corp.

The deal is expected to close in four to six weeks. Terms were not disclosed, signifying that Dialogic wasn't a big chunk of Intel's business.

Montreal-based Eicon purchased the "media and signaling" business, as Intel calls it, which consists mainly of the Dialogic acquisition of 1999. That includes products aimed at traditional telephony: PBXs, SS7 signaling, and the like, as well as multimedia boards. Eicon is also acquiring Intel's host media processing software and related blades. (See Eicon Buys Intel Unit.)

An Intel release noted the sale does not include Intel's AdvancedTCA (ATCA) blades, CompactPCI equipment, or carrier-grade rackmount servers.

In April, Intel CEO Paul Otellini announced a soul-searching mission in which Intel would review every one of its businesses, possibly selling off some of them. Intel's communications efforts were a possibility for some cuts, as the company had poured money into network processors, optical networking, and telephony during the bubble years. (See Will Intel Trash Telecom?)

A first step came with the $600 million sale of cellphone and smart-handset chips to Marvell Technology Group Ltd. (Nasdaq: MRVL). (See Marvell Takes a Bit of Intel.)

As for other Intel networking assets that could be on the block, a press release hints that they aren't in danger. It notes that today's sale leaves Intel to focus on core businesses "including Intel Architecture and network processors, modular communications platforms, and optical modules."

Even so, Intel's restructuring isn't done. "There are still additional actions expected," with executives saying they might reveal more in the third quarter, an Intel spokeswoman says.

Privately held Eicon, founded in 1984, sells telephony servers and VPN gateways. With the acquisition, the company is also getting some funding from Investcorp and Tennenbaum Capital Partners .

Eicon has 212 employees compared with the 600 affected on Intel's side. Eicon plans to make offers to "a significant portion" of those, says Nick Jensen, Eicon president and CEO.

— Craig Matsumoto, Senior Editor, Light Reading

Pete Baldwin 12/5/2012 | 3:45:10 AM
re: Intel Dumps Dialogic I doubt Intel has gotten to its goal of $1 billion in savings yet ... so what's next? If they don't cut any more in comms, where else should they look? Flash is one option that's been mentioned ...
Stevery 12/5/2012 | 3:45:08 AM
re: Intel Dumps Dialogic sigint: In spite of what the press release says, network processors are likely to be chopped. If not altogether, Intel might let the group rot and die a horrible slow death.

sigint/others:

Any vision/opinion into their optics biz? (I can't even remember the name of the company they grossly overpayed for back in y2k...)

sigint 12/5/2012 | 3:45:08 AM
re: Intel Dumps Dialogic Well, the storage group had been significantly downsized, by cutting in India.

Intel has basically discontinued support for legacy embedded chips (803X, 805X, i960, et al), again this was done very quietly, in the form of a circular to customers. There was no big press splash.

In spite of what the press release says, network processors are likely to be chopped. If not altogether, Intel might let the group rot and die a horrible slow death.

IA64 looks to go.
Steve0616 12/5/2012 | 3:45:07 AM
re: Intel Dumps Dialogic There was a comment by Andrew Schmitt of Nyquist Capital a couple of months ago in his personal blog that the optical module products were the only profitable unit in all of the attempts Intel had made into diversifying into communications. He noted that sales of its 10Ge SFP modules were roughly $100M/yr., and that Intel was the largest supplier of these, mainly X2, to CSCO. No mention of the tunables.
^Eagle^ 12/5/2012 | 3:45:07 AM
re: Intel Dumps Dialogic Stevery,

On actives side of optics Intel paid approximately $500M for Lightlogic, another large chunk of $$ for New Focus telecom business (I think it was something like $200m.. but can't remember for sure), primarily for tunable laser design. They then bought Sparkolor for approximately $30m (another tunable laser design).

I think there were a few more they bought as well. My sliderule says that they have invested OVER $1 Billion into the actives side of optics. they ended up with business in tunable lasers, tunable 300pin transponders, and pluggable txcrs (SFP, XFP, LX4, etc.).

how long it will take to make a profit on their investment?

On top of that, their burn rate in the opto division is high. They have more middle managers in the org chart than anyone else in the industry. For every product or program manager at most companies, they have 3-5 doing same job. There is similar overhang in supply chain, operations, finance and other management functions. If they were a stand alone company and were visible so that the opto division could be compared to their peers, it would be clear that while the business is growing significantly on the top line, the business model does not work as the division is structured. Too much overhead and fixed burn rate. This is being obscured now by the rapidly increased demand for some products (see the other article posted today on LR regards component shortages). So, for now, Intel is likly to keep opto going under the belief that the current surge will be big enough for them to re-coup investment and start to make money. However, I think this is false optimism. While true demand is going up significantly, I do not believe the pundits who see demand going up an exponential curve for the next several years. I think the demand will go up for 1-2 years and then level off to a new plateau based on carrier spending patterns.

only an opinion. should be interesting to read the posts from Intel supporters rebutting these comments.

Note: and this does not even address the hundreds of millions they invested into passive optics: plc based mux/demux, Vmux, etc. that they mothballed a couple of years ago. (were unable to sell it off.. so they just closed it)

sailboat
chickenpipe 12/5/2012 | 3:45:03 AM
re: Intel Dumps Dialogic Some key senior managers have already bailed out of Intel's optical components operation. While they captured market share, they are not making money (is anyone in optical components?) although I don't think they're wrapping $10 bills around each module that they ship. Perhaps some serious RIF's may help the bottom line, but that may also cripple their vision and competitive position.
Who would buy Intel? (for enough money to makethe sale worthwhile). Avanex is overextended. Finisar doesn't need their products. Bookham, JDSU, and the Asian competitors don't have cash and are fighting for their own lives.
^Eagle^ 12/5/2012 | 3:44:59 AM
re: Intel Dumps Dialogic I read the post from Steve who mentions the NyQuist Capital analysis.

That analysis is less than clear. There are several mistakes and some things that are contradictory.

1) what the market is moving from are SFF modules. The market is not moving away from SFP.

2) yes, Intel is shipping a LOT of small pluggables. But the NyQuist post confuses XFP with X2 modules. Cisco buys lots of X2 devices and XenPak devices and probably XFP too. Which is it that Intel is shipping lots of.

3) hidden in the widely reported 100M to 140M numbers from this division are some other products for network applications: some associated electronics used for making transponders.

4) while they may be shipping that 100m number, it is NOT clear that there is profit. Either top line or bottom line. Any statements to the contrary are just marketing until someone releases or shows some real financial information around this sector.

opinion: the high volume pluggables for enterprise and storage applications fits with Intel's business model and major corporate focus. This includes SFP, short reach XFP, XenPak and X2 stuff. What is not clear is how the rest of the division holds together. Tunables, 300 pin transponders, etc.

Question: do the readers of this board think Intel might break up the opto group: i.e., keep high volume pluggables where Intel's scale has an advantage and spin out the higher dollar but lower volume parts to someone else?

FYI, please note that I would like Intel Opto to succeed. They are a good team in general and I believe a successful Intel Opto will be good for the entire industry. I would rather they find ways to make their division more lean and efficient instead of closing it or selling it off.

I just have my doubts. Intel has a long history of investing in telecom because it is a growth area, then abandoning it.

sailboat
whyiswhy 12/5/2012 | 3:44:53 AM
re: Intel Dumps Dialogic "Question: do the readers of this board think Intel might break up the opto group: i.e., keep high volume pluggables where Intel's scale has an advantage and spin out the higher dollar but lower volume parts to someone else?"

Nope: death spiral competition is killing companies with small spleens.

Started (as far as I can tell) at the downturn of the boom with JDS dumping certain components below their then current cost in anticipation of moving everything to China, and the assumption that the move would allow them to at least return to net income. And they HAD a lot of cash to burn.

As far as I can tell, the results have been: savage cost cutting in all components across the board, NOBODY in components doing anything but bleeding. The only question is how heavily, and big their spleen is. Even JDS is out of cash, or nearly so.

Still no sign of anyone raising prices, because there is always someone else willing to sell.

If there was any doubt that price is determined by supply and demand and NOT cost, this is another reminder.

It will take someone with cash and/or credit facilities to last this out while the death continues. Intel is obviously in good position. They went through this phase before and emerged as the giant, admittedly in another field.

JMHO

-Why
^Eagle^ 12/5/2012 | 3:44:45 AM
re: Intel Dumps Dialogic Why,

Good post.

Could I infer from your post that you think Intel might decide to stay the course in optics and rely on their piles of cash to ride out the industry as everyone else falls away due to financing? and then emerge the dominate player?

Do you think that Intel has the stomach for that? Especially given they will also continue to bleed cash while the industry finally reaches some kind of equilibrium and given they seem to be intent on cleaning out business units that don't meet the financial bottom line.

I agree with you regards the price devastation brought about by the collapse of the industry and by the phenomena of some players haveing piles of cash they got during the stock valuation boom of late 90's into 2000.

I have also noticed that for the short term, it worked out well for the systems' OEM's. Alcatel, Cisco, Fujitsu, Lucent, Nortel all saw their margins go up during the components downturn. Lower cost of components was not neccessarily passed onto the carriers. And one could argue that a large % of the growth Huawei and ZTE saw over the last 6 years was partially enabled by artificially low opto component prices from vendors desperate to find anyone who could buy.

sailboat
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