Intel mobile chip strategy could prove costly

Jul 10, 2013 by Steve Johnson

Just when Intel Corp. finally is making real progress in the desperate push to get its chips into smartphones and tablets, the tech titan finds itself in a Catch-22.

With dwindling, it can no longer count on primarily selling PC chips to maintain its historical revenue growth. Yet some analysts caution that gaining a big foothold in the mobile market could leave it in a financial pinch, too.

That's because mobile chips sell for as little as a fifth of what PC chips command, they say. So even if Intel greatly boosts its , its revenue could stagnate or take a nose dive.

"It's something they have to navigate carefully," said Bernstein Research analyst Stacy Rasgon. "It's a touchy time."

Sales of PC chips accounted for about two-thirds of Intel's $53 billion in revenue last year, while its for was minuscule. But PCs are fast losing popularity with consumers. Manufacturer shipments of the computers are expected to drop nearly 11 percent this year compared with 2012, according to research firm Gartner.

By comparison, mobile-phone shipments are expected to grow by more than 4 percent and tablets by 68 percent.

Research firm IC Insights estimates that sales of cellphone chips this year for the first time will exceed those of PC chips - with the phone type totaling $63.5 billion, versus PC- sales of $62.5 billion.

In the past, Intel primarily focused on cramming more energy-hungry onto its brainy processors, so PCs could do more tasks. But a primary requirement for smartphones and tablets is that they have long , which means their chips must be highly energy efficient. And Intel's powerful have long gobbled too much juice to make them practical for such devices.

As a result, power-stingy circuits made by companies using a design from the British firm ARM Holdings have dominated the . But that is changing. By incorporating different materials and three-dimensional designs, Intel has cut its chips' power usage dramatically.

"It is remarkable," declared tech analyst Patrick Moorhead. "They've crossed the major mobility hurdle."

That was evident from a test last month by market advisory firm ABI Research, which compared a Lenovo running an Intel chip with several phones using ARM-based chips. It found Intel's product generally used far less energy than the competition's.

While Intel's chips couldn't compete with the ARM variety before, "it's a good race" now, said Jim Mielke, ABI's vice president of engineering.

The finding, which surprised many industry observers, has been widely regarded as a seminal achievement for the Santa Clara, Calif., chipmaker.

Intel spokeswoman Claudine Mangano said the company's chips already are in more than 20 tablets - including Samsung's new Galaxy - and 17 smartphones. She also predicted that more mobile devices will be fitted later this year with an Intel chip featuring what she called "an entirely new low-power microarchitecture."

Because Intel will report its earnings in a couple of weeks and federal rules limit what companies in such situations can say about their finances, Mangano said she couldn't comment on the effect that Intel's mobile-device push might have on its revenue.

But Wall Street pays close attention to corporate revenue trends and some analysts fear Intel's stock price could take a hit if its sales falter. They're especially concerned given the volume of mobile chips they say Intel will need to sell going forward.

Despite the company's gains in tablets, "expected unit shipments are too small to offset declining demand in notebooks," JPMorgan analysts concluded in a recent note to their clients. They said the average price of a tablet chip is $25 to $30, well below the $110 that Intel has been getting for notebook chips.

In a separate commentary on Intel's mobile strategy, Bernstein Research analysts said "the risk to this business model is extremely high" because Intel's "are likely selling for a third to a fifth" of its notebook processors. Consequently, Intel "will need to sell huge amounts of them to achieve growth goals for the year."

Estimating that Intel now owns less that 2 percent of the chip business, Nathan Brookwood of the market consulting firm Insight 64 said Intel may need to grab 10 to 20 percent to keep its revenue growing.

Asked if that was possible, he replied, "I think I would call it a challenge." And while acknowledging that Intel has met plenty of challenges since its founding in 1968, he cautioned that 20 percent might not be enough.

It all depends, he said, "on how rapidly the PC market erodes."

Explore further: Successful read/write of digital data in fused silica glass with high recording density

3.7 /5 (3 votes)
add to favorites email to friend print save as pdf

Related Stories

Intel introduces fourth generation processors

Jun 04, 2013

Intel Corp. unveiled its fourth generation processors in Taipei on Tuesday in a bid to give personal computers a new lease of life amid stiff competition from smartphones and tablets.

Intel launches chip for tablet computers

Apr 11, 2011

Intel Corp. has launched a new chip for tablet computers, Atom processor Z670 based platform, as the world's most powerful semiconductor company aims to become a contender in the market for mobile chips.

Intel 4Q profit down, beats Street (Update)

Jan 17, 2013

Intel Corp., the world's largest chipmaker, on Thursday said its fourth-quarter net income fell 27 percent from the previous year, as PC sales continued to weaken.

Recommended for you

Comcast wins more Internet customers, ad sales up

1 hour ago

Comcast Corp.'s third-quarter net income jumped 50 percent in the third quarter, helped by a one-time tax settlement, growth in Internet subscribers and fewer defectors from its cable service.

Christian Bale to play Apple's Steve Jobs

1 hour ago

Oscar-winner Christian Bale—best known for his star turn as Batman in the blockbuster "Dark Knight" films—will play Apple co-founder Steve Jobs in an upcoming biopic.

Netflix to stream new online TV series, 'Bloodline'

1 hour ago

Fresh from commercial and critical success with hit shows "House of Cards" and "Orange is the New Black," Netflix on Thursday announced a new online series, "Bloodline," set for release in March.

Intelligent materials that work in space

2 hours ago

ARQUIMEA, a company that began in the Business Incubator in the Science Park of the Universidad Carlos III de Madrid, will be testing technology it has developed in the International Space Station. The technology ...

User comments : 0