INTEL’S INTELLIGENCE – ACQUISITIONS

We’ll end the week that we’ve spent talking about acquisitions by mentioning Intel’s latest decision.  It’s said that Intel was in the running to acquire Israeli chip maker Mellanox Technologies, but Nividia announced that it was purchasing the company for a $6.9 billion acquisition.

Ironically, both Nividia and Intel shares rose after the announcement.  In case that seems curious, there’s a logical explanation.  Even though Mellanox is seen as having the possibility of making its new owners more competitive in the “vital data center market,” as Dan Henninger of the WSJ describes it, it’s interesting to note that the larger company of the two (that is, Intel) was outbid even though Intel has twice as much cash on hand as does Nividia.  I’d speculate that this is another one of those cases where the acquisitor was “talking” (that is, putting forth a bid) when they should have been “listening,” as was the stance adopted by Intel.  It wasn’t a matter of Intel not being invested in making deals – they have put through almost 70 acquisitions during the past 10 years, four of which were valued at more than $1 billion.  Nividia completed 15 acquisitions during that time, the largest $367 million.  But there are several things at work at Intel, currently.  For one, they have a relatively new CEO, Bob Swan.  And, even though Swan was well-known for his deal-making while CFO at e-Bay, he seems to believe that there are far more pressing issues currently confronting Intel, such as the need to overcome the problems in their production processes that will allow them to free up the work backlog that is currently hampering the company in its efforts to ship large volume quantities of its next-generation chip making processes.  This current operating deficiency must reversed quickly so that Intel can ship its latest generation product later this year and stay competitive.  It’s expected that Intel will be expending close to $15.5 billion in capital outlay this year to make these efforts work effectively.  Intel, like General Electric, is recovering from the past missteps of its former CEOs, who focused on things other than the more serious and immediate needs of the company.  Intel now depends on this market niche for its prime growth engine and, thus, must make the most of the opportunity to retain preeminence in the chip making world.

The acquisition work of obtaining a new company to add to the mix of the core company is only the beginning.  Once the new company has been acquired, the real work of orienting newly-acquired staff to the operating procedures of the company then begins, followed by finding and fitting them into the right placements, then monitoring their progress to ensure the veracity of the placements, revamping where needed.  Not to mention, the exacting work required to dovetail the new company’s divisions and organizational structure with that of the core company.  At its very minimum, this is an eighteen-month process, generally much longer.  Clearly, CEO Swan, who is seen as likely to be more cautious in deal-making for the immediate future, has made the decision to focus on the core work of the company (shipping contracted product in a timely manner) and to not be distracted by the appealing, yet contradictory, work of making a new staff merger work.  Thus, many analysts see the lack of acquiring a new company, which many would otherwise have seen as a loss, as something that can actually be chalked up to a decided win for Intel.  And, one analyst was forthright in his assessment: “Financial discipline at Intel is now real!”  Always a pleasure to watch company leaders do the right things, for the right reasons.

ALL THE MOVING PARTS:  ALL OF THE PARTS OF A COMPANY ARE ONLY SO GOOD AS ANY ONE OF ITS PARTS – ALL MUST BE WORKING EFFICIENTLY AND IN HARMONY TOWARD A COMMON GOAL.

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