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Why Intel can afford to play the long game in the war for phones and smart devices

Mark Hachman | Jan. 19, 2015
Microsoft chief executive Satya Nadella has made no secret of his vision for Microsoft: cloud first, mobile first. On Thursday, Intel CEO Brian Krzanich unveiled his own mantra. And no, it's not "Intel Inside."

Microsoft chief executive Satya Nadella has made no secret of his vision for Microsoft: cloud first, mobile first. On Thursday, Intel CEO Brian Krzanich unveiled his own mantra. And no, it's not "Intel Inside."

During Intel's record fourth-quarter earnings call, Krzanich noted that Intel "is in a very different place than it was even 12 months ago," participating in a broader range of devices and product segments. 

"These are the trends we'll build on in 2015, bringing us closer to our vision: because if it's smart and connected, it is best with Intel," Krzanich said.

And that's an important statement, because Krzanich is putting his company's money where his mouth is. How else to explain a business unit, the Mobile and Communications Group, which had negative revenue of $6 million? Or how Intel continues to publicly beat the drum in embedded devices, from its Basis smartwatch unit to its work with Opening Ceremony or its lightning-fast progression in embedded chips, with Quark, Edison, and now Curie?

But as Intel reinvents itself for the Internet of Things, it's still reporting record revenues. It's still dominating the server market, which reported $4.1 billion of revenue, a 25 percent increase in revenue from a year ago, when the average price of an Intel server chip was 10 percent lower. Sales in its PC Client Group edged up 3 percent even as the PC industry declined overall. 

Let's face it: in servers, Intel has a near monopoly. AMD's market share is less than 10 percent. And although there's some fear that ARM chips may cut into Intel's dominance in certain segments, Intel's Data Center Group is a cash cow that looks nigh unstoppable — and really, that's why Intel is too.

Playing the long game

What that money buys Intel is time.

If you've been following Intel, you know that the company has struggled badly to keep up with Qualcomm, the Intel of the smartphone industry, whose president, Derek Aberle, pointed out that Qualcomm is on its seventh generation of application processors that have been integrated with cellular radios. That was a dig at Intel, whose first generation chip, Sofia, is in qualification with hardware partners and carriers — and with just a 3G radio inside. (An LTE-equipped Sofia chip is due in the second half of 2015, Krzanich said.) Smartphones demand that cellular radios be integrated into the application processors that power them, for reasons of cost and space.

And Intel's communication business will suffer in the short term. But eventually, Intel will sort out its issues and begin making inroads. Intel has struck deals with Rockchip and Spreadtrum, two third-party chip companies, for them to flood the market with low-cost versions of Sofia later this year. That will open doors for Intel in the tablet space that customers want to open, but can't afford to.

 

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