Robert Noyce, the creator of the big idea that became Intel (INTC), died in 1990 when he was 62.  He never saw the company make it to the big time, since the stock was $1.25 on a good day that year. Noyce was from Iowa, and was briefly notorious in college for stealing a pig that became the center of a luau. This college prank almost got him thown out of Grinnell College before he could get his physics degree.

Noyce invented the integrated circuit and was a cofounder of Intel in 1968, 22 years before his death and would have overshadowed his Intel co-founders Andy Grove, whose monumental paranoia has been widely chronicled, and Gordon Moore, who simply made hundreds of millions of dollars before retiring. Grove is listed at a "co-founder" at the Intel website. Noyce is not

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As soon as Noyce was gone the company began to market itself to consumers with the "Intel Inside" campaign, created by the company’s marketing man Dennis Carter. The move made Carter famous, but it is unclear that it helped the company sell a single chip that it would not have sold otherwise. PC and server companies already needed the Intel processors as the core for their products. Carter’s program simply wasted Intel’s money and lost its shareholders tens of billions of dollars over the years.

The key to Intel’s success had nothing to do with advertising. Noyce’s creation of the microchip got Intel the IBM PC business in 1981. After that every other company in the industry became an Intel customer. What Microsoft (MSFT) had done on the software side of the personal computer industry, Intel did in hardware

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Noyce got the Intel headquarters named after him, but the limelight went to those who did not deserve it. Longevity has its advantages, especially in the way it allows survivors to re-write history for their own benefit.

Intel’s main business has not evolved much since Noyce died, so there is not much credit to spread around. Perhaps that is the genesis of Grove’s grand paranoia.   Maybe he feels inadequate knowing that he never trumped Noyce’s achievement. After 1990, management did make the company bigger but this has not really done much for shareholders. Intel’s operating income was no better in 2007 than it was in 1998.

Intel’s first real problems emerged just a few years after Noyce was gone. The company came out with the Pentium in 1993.  The press began to run stories about its flaws and Intel took a $500 million charge for these problems. By 2000, the company was missing scheduled launch dates for later versions.
In the last part of the 1990s the company made another effort to diversify beyond the foundation Noyce had built. It tried to get into a number of new chip markets including processors for handsets and high-powered hardware for home entertainment. The PC marriage to the TV never happened. In 2006, Intel sold its handset chip business to Marvell Technology.

Most of what Intel did from the mid-1990s to 2005 was a bust. From 1998 to 2001, the company’s operating income fell by over two-thirds. Still haunted by the costs of Carter’s idea that being a "brand" meant spending money and with a burgeoning head count in engineering, Intel grews beyond its natural borders.

Clever and misguided plans had broken the watch that Noyce made and it cost the shareholders plenty. As astonishing as it may seem, Intel’s shares trade where they did ten years ago. For all the revenue the company has piled on in the last five years, increasing 43% to $38.3 billion, the results for shareholders have not even been modest.

Over the last decade, Intel has been successful at one thing. It has maintained its market dominance as the premier supplier of chips to the global PC and server industries. When smaller rival AMD (AMD) released some competitive products which were successful in 2004 and 2005, Intel pushed the company into a brutal price war and routed AMD like Nelson did the French at the Battle of the Nile.

After evicerating AMD by pushing down its gross margins, Intel demanded better from its own developers and brought out a series of chips which in both performance and power consumption bested anything AMD could get to market. It is, without question what Noyce would have done—win with better engineering.

Intel fundamentally has nothing to compete with but its own poor decisions. Over the last two years, the FTC and antitrust authorities in the US, EU, and Asia have been looking into whether the company rolled AMD in an alley by cutting special deals with PC makers. The deals were to deal Intel in for the business and deal AMD out. Sovereign authorities now raid Intel’s offices like clockwork.

If the governments win some of these cases, or Intel settles, it may be the only thing that keeps AMD afloat. Intel has become the  new Microsoft of the last two years–a big company blamed for poll-axing the competition in the dark. AMD suffers from its own singular stupidity. It bought graphics chip company ATI in its own effort to diversify. It piled on debt and is now faced with going the way of the stegosaurus

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Intel continues its effort to diversify. The pressure is on to exit its current period of mediocrity. For the June quarter, Wall St. expects EPS at $.25. Last year the number was $.22. Based on comments by Intel’s CEO Paul Otellini, the firm’s year is looking fine. According to him, the economic slowdown has not hit the company.

Otellini, a former Intel marketing executive, descends from Dennis Carter. He would not recognize Noyce on sight nor would he understand how Noyce made his bones in the industry.

Otellini’s dream of the future is that Intel will have success marketing chips for internet-enabled devices which are smaller than a PC but bigger than a cell phone handset. The new Atom processor is its flagship in a business which requires modest computing power and low battery use. With products like the Apple (AAPL) iPhone and the RIM (RIMM) Blackberry adding PC-like features ever day and smaller PCs working on 3G networks, Otellini’s market is a mirage, but Intel will spend itself into exhaustion pursuing it.

Intel has not learned the lesson from other big companies that wanted greener grass. GM bought EDS. Microsoft got into the ISP market with MSN and the MP3 player market with the Zune. Citigroup (C) bought anything it could lay its hands on.

Intel already knows that this kind of diversification rarely works, but, it is still betting on the horse least likely to finish first in the name of making the company larger.

Noyce invented first place in the PC chip business and he is nearly 20 years gone.

Douglas A. McIntyre

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