Intel Missed a Chance to Make Processors for the iPhone: Otellini

By Jeffrey Burt  |  Posted 2013-05-18

Intel Missed a Chance to Make Processors for the iPhone: Otellini

Intel is a $53 billion company in desperate need of a strong mobile play, and according to former CEO Paul Otellini, he let a golden opportunity slip through his fingers several years ago.

Speaking to The Atlantic as he prepared to step down as Intel’s top executive, Otellini recalled the time when Apple officials—then in the process of developing what would become the iPhone—approached the giant chip maker about making the processor for the device. Intel already was making chips for Apple’s Mac products. However, not realizing the ripple effect the then-unnamed mobile device would have on the industry, he passed on the deal, saying the financial numbers didn’t seem to make sense.

"We ended up not winning it or passing on it, depending on how you want to view it. And the world would have been a lot different if we'd done it," Otellini told The Atlantic in a story published May 16. "The thing you have to remember is that this was before the iPhone was introduced and no one knew what the iPhone would do.”

Apple officials were interested in a particular chip, and let Intel know that they would only pay a certain price for it, and nothing more.

“[T]hat price was below our forecasted cost,” Otellini said. “I couldn't see it. It wasn't one of these things you can make up on volume. And in hindsight, the forecasted cost was wrong and the volume was 100x what anyone thought."

Now Intel is aggressively trying to push its way into a mobile device space where the bulk of smartphones and tablets run on systems-on-a-chip (SoCs) designed by ARM and made by the likes of Samsung, Qualcomm, Apple and Nvidia. Battery life on these devices is crucial, and Intel has been working to drive down the power consumption of its processors. ARM-based chips have been much more energy efficient than Intel processors.

Intel is rapidly innovating on its low-power x86-based Atom platform, and so far has some smartphones powered by its chips, though those devices are sold overseas. Intel executives are expecting that upcoming Atom SoCs, which will be built on a new microarchitecture, dubbed “Silvermont,” will help the company gain more ground in the mobile device space. Silvermont represents the first new microarchitecture for Atom since it was introduced five years ago and aimed at the then-healthy netbook market.

Silvermont will offer five times lower power consumption and three times the performance of current Atom SoCs, which are based on the original “Bonnell” microarchitecture. Devices powered by the upcoming 22-nanometer “Bay Trail” Atom SoCs for tablets and “Merrifield” chips for smartphones will begin coming to market later this year and early 2014. During a press conference earlier this month to talk about the microarchitecture, Dadi Perlmutter, executive vice president and general manager of the Intel Architecture Group and Intel’s chief product officer, said Silvermont will enable Intel “move into mobile in a big way.”

“We’re breaking the myth that ARM can do things that Intel cannot,” Perlmutter said.

Intel Missed a Chance to Make Processors for the iPhone: Otellini

Analysts have acknowledged the tremendous growth of Intel during Otellini’s eight-year tenure as CEO, but many of criticized his slow response to the rapid shift toward mobility in the industry, a change that seemed to catch a number of the top tech vendors—such as Hewlett-Packard, Dell and Microsoft—off guard. That has left Intel playing catchup to smaller rival ARM.

Brian Krzanich, Intel’s former chief operating officer who replaced Otellini as CEO, said in a speech May 16 during the company’s annual shareholders meeting that the mobile space will be a key focus for him and the company going forward.

“I don’t think we can start a discussion like that without first, having a quick discussion about one of the key real trends that have occurred over the last couple of years, and that’s really this ultra-mobile and move to tablets and phones that has occurred in our industry,” Krzanich said, noting that there already are 12 Intel-powered smartphones selling in 22 countries and 15 tablets that run both Windows and Google “We see that we’ve been a bit slow to move into that space, but what I want to show you today is that we see the movement, we’re well positioned already and the base of assets that we have will allow us to really grow in this area at a much faster rate moving forward.”

Still, Otellini seemed disappointed in the missed opportunity with the iPhone (although there have been on-and-off rumors that the two companies have discussed the idea of Intel making iPhone chips over the past year or so). There was no way to predict the impact the iPhone would have on the industry, but it was still a hard lesson learned, he told The Atlantic.

"The lesson I took away from that was, while we like to speak with data around here, so many times in my career I've ended up making decisions with my gut, and I should have followed my gut," Otellini said. "My gut told me to say yes."

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