I wrote a few days ago about the Intel anti-trust settlement with the Federal Trade Commission. Those words stand unchanged but some readers have asked for more so I have given the deal further thought and have what might be a better context in which to place it — Too Big to Fail. This isn’t “too big to fail” in the Bush/Obama big bank context in which failing and stupid institutions are saved at any cost to the public. Intel, in contrast, literally is too big to fail, at least right now.

Everything about the Intel/FTC settlement screams of one thing — Microsoft. Redmond’s multi-year nightmare with the FTC, DoJ, and the attorneys-general of several dozen states wasn’t lost on Intel, which is a more rational company and doesn’t want a Microsoft-like anti-trust experience. Both companies are guilty and both are paying something for that guilt, but Intel clearly wants to avoid the decade of pain and distraction suffered by Microsoft.

For the record, Intel admitted no wrong-doing in the settlement. But they also promised to specifically change their behavior.

What this settlement (and the previous one with AMD) does for Intel is clear the decks for future action. Now Intel can attack new market segments and be aggressive in existing market segments within the rules of the FTC deal.

Microsoft was paralyzed with the FTC breathing down its neck. Intel is not paralyzed.

Roughly $2 billion in payouts and Intel is a free bird — a rich free bird at that — having proved that crime does pay.

These settlements will effectively pay for themselves in two months at current Intel profit levels.

And as a result, Intel management bandwidth is now opened-up, hopefully not for more mischief.

Under the FTC deal Intel will open some patents to AMD and NVIDIA. This is healthy for Intel. If NVIDIA or AMD dies, Intel automatically becomes a monopoly subject to further regulation. So keeping NVIDIA and AMD alive and at least marginally healthy is in intel’s best interest. That’s an important take-away from this column: Intel needs AMD and NVIDIA.

Here’s the other big take-away: Intel has reached a scale on the cost equation where small volume companies can survive but not compete. AMD and NVIDIA survive by the grace of Intel, not despite it.

Intel’s latest gross profit margin is 65 percent!!! The company could easily cut prices and kill both AMD and NVIDIA. But Intel won’t do that. This realization ought to play an important part in AMD and NIVIDIA strategy. AMD gets that, but I think NVIDIA somehow doesn’t.

If NVIDIA and AMD maintain a few percentage points market share it is healthy for the entire ecosystem. Remember that as-is Intel is earning $3 billion per quarter. That’s Microsoft-scale money without the Microsoft-scale problems of a platform shift that risks leaving that company marooned.

This is all good news. So why hasn’t the market rewarded Intel with a big boost in its share price? Because conventional wisdom on Wall Street says that this freed-up management bandwidth will just help Intel launch another money-losing business. Remember the billions lost on Larrabee?

Conventional wisdom is often correct.

Vacancy at Hewlett-Packard

I’m sorry to have been so out of touch lately. The Startup Tour continues, of course, but this week I also have an Op-Ed article appearing in Sunday’s New York Times that I had to write. It is about Google and Verizon and may give a new perspective on recent events between the two companies. Look for it.

This week brought two other news events worthy of comment — Intel’s settlement with the Federal Trade Commission and Mark Hurd’s sudden departure as CEO from giant Hewlett-Packard.

The Intel story is almost as it is being presented in the trade and general press. Yes, Intel has promised in very specific ways to no longer be evil. No, Intel isn’t being made to give back the money it made as a result of being evil, so to a certain extent crime does pay. Of course some will say the money damages were in part covered by Intel’s recent $1.25 billion settlement with AMD, but the FTC also doesn’t generally impose fines. So if you happen to be guilty of anti-trust I guess it is better to be sued by the FTC than by the DoJ, which does impose fines.

Either way, Intel got away with something and the graphics chip makers in particular should be pissed.

One area where I think the press has it wrong, however, is in its interpretation of Intel’s promise to preserve the PCI Express bus. Third-party graphics cards use this bus and the fear of those companies is that Intel will simply replace PCI Express with some incompatible bus, making the third-party GPU chips and boards obsolete in the process. Now with the new FTC agreement they are promised at least six years before Intel deep-six’s PCI Express.

If only it were that simple. What the agreement actually says is that Intel has to preserve PCI Express for six years but not that it can’t introduce a new — and incompatible — graphics bus.

And that’s exactly what Intel will do. They’ll keep PCI Express but then add a new bus that’s wider and faster and generally better all-around. Even a mediocre Intel GPU that works on the new bus will have more than a fighting chance against NVIDIA or ATi (AMD) cards that work only with the older bus.

Why doesn’t the FTC see this? Because when it comes to the technical internals, they are stupid.

And speaking of stupid, super-smart HP CEO Mark Hurd got the boot this past week for filing improper expense reports and hitting-on a marketing consultant. There is no doubt that Hurd is (was?) the best big PC company CEO of his generation, a true genius who brought HP back not from the brink as Steve Jobs did at Apple, but back a long way back to PC market dominance while Dell self-destructed in response. But Hurd also appears to have had few friends at HP or he could have ridden-out this boneheaded thing or at least held on a bit longer.

Brilliance combined with power can lead to isolation and eventually to arrogance.  Hurd was arrogant.

I recall being asked to make a film for HP in the early days of Hurd’s reign and the people I spoke with fairly high up in the company were afraid of the guy. And now he’s safely out of the way so HP can return to sleep if it chooses.

I’m not saying Hurd should have stayed, just that his departure probably was worth the 10 percent drop in market cap that followed the announcement of his resignation.

The best way for HP to recover from this is, of course, to find a CEO even better than Hurd. That’s exactly what they did the last time, when Hurd replaced the hapless Carly Fiorina.

It will be much harder this time for HP to do the same.

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There is a funky dance going on right now between chip giants Intel and nVIDIA and I just want to cut through the crap and tell you that no matter what the companies are saying it is likely to end with nVIDIA being purchased by Intel. Both parties know it and the only thing that hasn’t been determined yet is the price, which is what all this posturing is about.

Intel this week cancelled Larrabee, its proposed graphics processing unit (GPU) that was intended to compete with both nVIDIA and ATi (now a part of AMD). The moment AMD bought ATi Intel had to decide whether to build or buy its own GPU to stay in contention. They decided to build, or at least said they had. It’s hard to say how viable Larrabee ever was but at some point it turned from a weapon against nVIDIA to a barrier to Intel buying nVIDIA. So Larrabee had to go, because without that chip Intel presents a much less imposing target for the Department of Justice and Federal Trade Commission which might oppose a merger on anti-trust grounds.

With Larrabee, Intel could be seen as crushing a major rival. Without Larrabee, Intel is just trying to enter a new market.

Intel wants nVIDIA not just for its GPU’s but also for its mobile chips. Mobile is a big part of the future of computing yet Intel in 2006 cancelled its business aimed at handset makers, writing-off $5 billion in the process. Remember that? Despite attempting to back-in to the market again with its upcoming Moorestown post-Atom low-power processors, what Intel would really like are nVidia’s superior Tegra AXP chips aimed at mobile phones and media players. Ironically nVIDIA didn’t even design the Tegra processors, which it bought a couple years ago with Portal Player.

Intel had to do something the minute AMD bought ATi. Now with Larrabee gone Intel has no real choice but to buy another company to remain in contention. The only such company available is nVIDIA.

Notice how Intel has been making a serious effort lately to settle the anti-trust cases pending against it, especially with AMD, to which Intel is paying $1.25 billion. Yet against nVIDIA, the legal action actually appears to be heating-up. Why would Intel hold an olive branch for all the others yet still oppose nVIDIA? Again it is to drive down the price of an eventual acquisition and Intel has nothing to fear from an nVIDIA legal case if its actual intention is to buy the company, retiring the lawsuit.

But the action is not all coming from Intel. Last month nVIDIA announced they were suspending development of chipsets for new Intel processors. Later we read that nVIDIA was going to release a chipset for Intel’s Lynnfield processors only to have Intel question the validity of nVIDIA’s license to the Intel’s Direct Media Iinterconnect (MDI) technology, which connects Lynnfield processors to the chipset. Both companies are talking tough and so far nVIDIA has not released a product that supports Intel’s Core i7 or Core i5 processors, yet without Larrabee Intel really needs that support no matter how much they fume.

Meanwhile nVIDIA has its own Ion low-power System-on-Chip for portable Internet devices and, inspired by AMD/ATi’s Fusion forthcoming CPU/GPU hybrid, nVIDIA has been working on a similar chip of its own. Intel reportedly was, too, with Larrabee, but now that’s over.

Intel could effectively block the nVIDIA hybrid processor through the MDI licensing ploy, above, and doing just that would have worked to the advantage of both Intel and AMD while Larrabee was still viable. I suspect this may have been a big part of Intel’s reason for settling the AMD anti-trust suit. It may have been part of their argument to AMD, too, about why the smaller company ought to settle at this time, because doing so would remove an nVIDIA threat. The big question is whether Intel knew at the time that Larrabee was doomed? If they did, then the real plan was for Intel to absorb the nVIDIA hybrid processor and make it its own, which they can effectively do now that AMD has promised not to testify against Intel under any circumstances as part of their legal settlement.

That would be Intel turning the tables on AMD, which may have been suckered.

If this reads like a huge conspiracy theory that’s because it is.

But sometimes conspiracy theories are true.

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Intel last week bought for $884 million Wind River Systems, a venerable embedded operating system company — yet another of the chip giant’s recent forays into software. The reason for this purchase is both simple and grand — to help Intel vertically integrate and to further its Linux ambitions.  Intel’s ultimate target with this purchase is Microsoft.  It’s all about kicking Redmond out of the netbook business.

Netbooks are the big hardware success of 2009 and most are powered by Intel Atom processors.  The problem with PC’s in general and netbooks in particular is that they aren’t very profitable for Intel campared to the good old days.  Microsoft makes more profit from every Windows PC sold than does the PC manufacturer and LOTS more profit than Intel makes despite its massively dominant market share in microprocessors.  And with Netbooks retailing under $400, compared to Microsoft Intel makes hardly any profit at all.  So Microsoft has to die.

This is a huge change for Intel, which has for decades acted as Microsoft’s bitch, doing pretty much whatever Redmond demanded for fear of being written-out of the next Windows PC hardware spec in favor of AMD or even IBM.  But that was the old Microsoft.  The Microsoft of today isn’t nearly as powerful, whether they yet know it or not.

Netbooks and mobile handsets are the first products from Intel’s Linux strategy.  But Intel’s Linux platform — called Moblin — can be extended to the desktop as a direct competitor to Windows 7 if the company finds success in the netbook space.  Microsoft isn’t stupid, so of course there is a huge battle brewing.

Here’s the problem for Intel: the company lacks key software capabilities despite having more than 5000 software engineers on staff. This is true especially for system software.

Intel’s new strategy (now 3-4 years old) is to be a platform company rather than a processor company. To become a platform company, Intel needs both silicon and low level software to tie all those pieces together.

Think about Intel’s Centrino as a platform. Centrino has: 1) a low-power processor; 2) a wireless chip, and; 3) software to manage wifi/wireline connections. Intel makes more money selling these three parts together as the Centrino brand and less when they sell the individual pieces. So software to Intel is glue to connect chips together and maximize revenue.

New chips at Intel require more system software (firmware) than Intel ever anticipated. For example: Intel’s Active Management Technology (AMT) requires firmware to wake up chips and apply patches when the computer is sleeping. This is true for both virtualization and security. In recent months Intel has stumbled delivering some key platform technologies simply because the firmware wasn’t ready.

Now Intel is searching for the next wave of applications for non-PC (typically embedded) computing devices — autos, healthcare, gaming to name a few. All these non-PC based applications will require even more system software capabilities.

Intel’s efforts with the Atom processor are beginning to pay off. They have the right process technology to produce Atoms at a low price. But the market is not paying much for Atom and Intel is at risk of cannibalizing its traditional markets with OEMs designing Atom-based netbooks that consumers buy instead of more profitable notebooks. In this environment Microsoft is not helping, since Windows makes netbooks more expensive and limits the profitability of both the PC maker and Intel, which is essentially making a netbook-on-chip.

Moblin is Intel’s answer to Windows – an Open Source Linux entirely funded by Intel.

Moblin is also Intel’s answer to Google’s Android operating system.  Since Android is also Open Source and free, Intel might have relied solely on Google to take on Microsoft.  But Intel as a platform company is too strategic to rely on any third party, even Google — hence Moblin.

The Wind River acquisition is Intel’s $884 million acknowledgement both that Moblin is strategic for the company AND that the Linux campaign isn’t going as well as Intel would like.  Wind River, as a major force in embedded software, will quickly move Moblin into a variety of non-PC devices while also giving Intel more of the low-level software expertise that it has so sorely needed.  If it works, we’ll see Moblin everywhere in 18-24 months.  If it works really well, we’ll see Intel challenging Microsoft on servers and desktops, too.

Intel CEO Paul Otellini is determined not to be anybody’s bitch.

Microsoft

Microsoft may or may not make a deal for Yahoo’s search service.  What neither firm realizes yet is there is a better way to do searches with value advertising.  It will be easier than what Google is doing and can produce more tangible results.  Right now both firms are in the mind set of “competing with Google” instead of being creative and innovative.  When they start thinking independently and start tuning into what the customer needs, Google will have some competition.

Apple

If Apple would port its Mac software (iWork, iLife, Final Cut, etc) to Windows it could quickly OWN the software market.  Microsoft’s competitive advantage is not Windows — it is Office.  Apple could take them out if it chose to.  They won’t in 2009.  But if the economic crisis really hurts Apple’s 2009 business, taking business away from Microsoft in 2010 could become a real consideration.

Google

Android, Google’s phone software will suddenly become much better and will become the preferred software platform for the cell phone industry.  Competitors of the iPhone will jump on the Android bandwagon and rush many new products to market in 2009.  This will force AT&T and Apple into some uncomfortable decisions.  Should AT&T be open to iPhone competitive products?  Should Apple open up to other telco providers?

IBM

Thanks to the economic crisis, the IT industry will take a beating.  To survive many IT providers will cut costs and services to the point of driving away customers.  IBM is more diversified and has deeper financial reserves.  In time customers will begin to return to IBM, but with some new expectations.  They’ll be willing to pay more for help desk workers who speak understandably.  They will want to see more people on site, more face-to-face support.  This won’t stop the rush to offshore IT jobs.  It will however signal a change in the direction of the pendulum and will force IT providers to rethink their business model.

So far IBM and most IT providers have cut support costs by shipping work offshore to lower paid workers.  Someone in the industry will finally realize there is another way to cut — by using quality improvement techniques to reduce the occurrence of problems.  This will become a game changer in the industry.  Sadly IBM is too big, too bureaucratic, too set in its ways to catch this wave.  What will happen instead is firms will start in-sourcing their IT again.  Watch for this in the next 5 years.

Yahoo

Someone will buy a controlling interest in Yahoo.  There will finally be a big house cleaning of Yahoo’s board and senior management.  Then either of two things will happen.  The new leadership will unlock Yahoo’s value and creativity — and Yahoo will soar again.  Or, Yahoo will flounder and continue to become less relevant over time.

DTV

There will be problems with conversion to DTV.  It will take months, perhaps a couple years for the problems to become apparent.  The original NTSC system was basically an “open” system.  All stations, satellite, and cable providers used it and it worked on every television made.  With DTV content providers will attempt to introduce proprietary technology in an attempt to “lock in customers.”  Only open-air transmissions will use DTV.  Cable and satellite will use different and proprietary digital communications.  Cable and satellite will start increasing their prices to the point where consumers start spending less.  To make matters worse, the Internet will become a big provider of DTV content and it will also use “different” technology.  At the same time ISP’s will implement bandwidth restrictions to thwart DTV content that is not their own.  It won’t take long for the S consumer to get very upset with things.

Internet Centric devices

Theft of smart phones and Internet centric devices will become a big problem.  Thieves will figure out how to steal identity information, raid bank accounts and investments, and so on.  This will become a big problem.

Intel/AMD

Intel will launch an 8-core processor for the PC market.  It’s price point will be too high for the consumer market and the product will languish — forcing Intel to lower the prices of its product line.  Worse, Microsoft will limit its support of this chip to Vista.  While we can expect Vista to continue to get better and better, the extra cost and hassle of Microsoft’s software, Office upgrades, etc will limit sales.  Apple will swoop in and take more market share.

Obama

As a result of all the economic problems and scandals on Wall Street, I predict the Obama administration will propose a comprehensive financial monitoring system for the banking and investment community.  It will be proposed in 2009 and will take a few years to implement.  With it government agencies will have the means to thoroughly monitor and regulate the industry.

The Obama administration will move forward, as promised with a national program to computerize medical records.  They will however, miss one of the greatest values of such an effort.  Because of privacy concern, government ignorance of technology, etc the system will not have the ability for the medical industry to do data mining.  With computerized records we will finally have the ability to spot drug interaction problems and perform research on the effectiveness of treatments.  With data mining with patient privacy protection, our health care system can be greatly improved.  We will miss that opportunity.

The Obama administration and/or Google will create a new Google Gov service.  Like its news service, Google Gov will start tracking everything going on in Congress.  Committee hearings, votes, discussion of bills and amendments will be captured by Google and made public within days.  We will finally be able to see in real time what our elected leaders are really doing, who is influencing them, etc.  This will be a game changer.