Intel is leaving the Ethernet switching market just a few years after making a major purchase in the sector.
Intel (INTC -6.41%) had had its sights set squarely on expanding its footprint in the data center. Long the market leader in server CPUs, competition from AMD has made recent gains. Yet Intel recognized that data centers required more than just central processing units to function.
In 2019, Intel purchased Barefoot Networks in an effort to strengthen its position in the data center’s networking sector. Ethernet switch chips and software were developed by Barefoot Networks with programmability and adaptability in mind. Adding Barefoot Networks “will complement our focus on end-to-end cloud networking and infrastructure leadership,” according to an Intel press release announcing the acquisition.
The Network and Edge Group (NEX) of Intel is responsible for the Ethernet switch chips the business developed and sold, and it brought in $8.9 billion in sales in 2022. Although it now comprises a broader range of goods, Intel still considers this division to be critical to the success of its overall transition.
Stepping away from Ethernet hubs
Intel indicated with its fourth-quarter report that it would no longer invest in its network switching product line, but NEX would continue to play an important role inside the firm. As a result of this decision, work on the Tofino chipset family obtained in the Barefoot Networks deal will no longer proceed. Intel will maintain its commitment to its current product lineup and client base.
Intel’s CEO Pat Gelsinger took office at the company at the beginning of 2021, and the company’s decision to shut down its switching division is the sixth business Intel has left since then. Through these departures, Intel has been able to save almost $1.5 billion, a sum that will be quite useful as it deals with the historic slump in the PC market.
Almost the whole memory industry is also no longer involved. SK Hynix acquired Intel’s flash memory and solid-state drive divisions in a convoluted agreement announced in 2020. Intel has already moved its SSD business and its NAND memory manufacturing plant to China, although the full completion of the transaction is not expected until 2025. It is prudent to forget the past. The memory chip market has fallen even further as the demand for CPUs in personal computers and servers has decreased.
Optane, Intel’s brand name for its 3D XPoint-based devices, was the company’s other memory business segment. Intel and Micron developed a new type of memory called 3D XPoint, and it showed a lot of promise. It was non-volatile like NAND but much quicker; thus it could be utilized in ultra-fast SSDs or even replace DRAM in some applications. Unfortunately, the technology never caught on. Intel wrote down $559 million in inventories last year and shut down operations.
Paying close attention to the most promising prospects
Under Gelsinger’s leadership, Intel is concentrating its efforts where it has an existing advantage or could eventually develop one. Computer processors and server CPUs are suitable. Equally impressive are the company’s efforts to enter the discrete graphics card market with its Arc graphics cards. Furthermore, Intel’s expansion into the foundry industry is rational because there are so few companies with the resources and expertise to produce chips utilizing cutting-edge technology.
The past has never been particularly logical. Memory chips are a commodity whose price fluctuates with market conditions like any other good or service. The idea behind 3D XPoint was sound. However it was ultimately unsuccessful as a commercial venture. While it may not have been a bad idea to enter the Ethernet switching chip sector in 2019, Intel has opted to stop pursuing this market.
Intel plans to save $3 billion this year, with total savings of up to $10 billion by 2025’s end. The Ethernet switch chip business appears to be a casualty of Intel’s strong efforts to bring its cost structure under control, as getting out of non-core industries is one approach to generate cost savings.