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Intel paid a heavy price in its efforts to raise its status as a major supplier of processors for tablets.
Company executives set a goal to have its Atom chips in 40 million tablets in 2014. In the end, Intel silicon was in 46 million tablets that shipped last year, exceeding the company’s goal. However, much of that was gained through subsidies paid to OEMs to use the Intel chips, helping drive losses in the company’s Mobile and Communications Group to more than $4 billion in 2014.
Now Intel officials are shifting their focus as they enter 2015, looking to make money more than to gain market share in the highly competitive mobile chip space. The push in the tablet market did what they wanted it to do, but now attention needs to be paid to profit margins.
For 2014, “We said, ‘Look, we have to go out and establish our footprints here,'” CEO Brian Krzanich said during a conference call Jan. 15 to discuss the company’s fourth-quarter and full-year 2014 financial numbers. “We have to get ourselves known in this market, be considered a serious player and get the developers attracted, both the hardware and software developers interested in [Intel Architecture]. … We feel like we’ve done a very nice job of establishing ourselves as one of the top producers of silicon in this segment.”
Intel, in 2014, saw record revenues, due to the strength of its data center business, a rebound in the PC chip sales, and growth in such new areas as the internet of things (IoT). Throughout the year, the mobile business, with its massive losses, stood in stark contrast to the strength in the other units.
Intel famously missed the rise of mobile devices, when smartphones and then tablets hit the market. Company officials instead stayed focused on its core businesses of servers and PCs and now the bulk of mobile devices are powered by systems-on-a-chip (SoCs) based on ARM’s low-power architecture and made by the likes of Qualcomm and Samsung. Meanwhile, tablets for the past two-plus years have eaten into the global PC market, which now appears to finally be stabilizing after several quarters of sales declines.
Krzanich noted Intel’s miss on the mobile space when he took over as CEO in May 2013, promising the company would accelerate its efforts to get into smartphones and tablets while also ensuring that Intel would not make the same mistake with other new trends, such as the Internet of things and the cloud.
Intel has continued to struggle to gain a solid foothold in the mobile device space, though there have been some gains. Lenovo has embraced Intel chips for some of its smartphones, and at the recent Consumer Electronics Show (CES), Dell unveiled a thin Android tablet—the Venue 8 7000—that is powered by an Atom processor. Krzanich pointed to the Dell tablet as an example of how Intel can continue to grow in the mobile chip market.
“It’s showing a thin tablet with real innovation at a $399 price, where people can start to make money in the tablet space a little bit now again,” he said. “So we think the combination of right products plus real innovation like that will allow us to make real progress.”
Intel Shifts Mobile Focus from Market Share to Profits, Cost Savings
Entering 2015, Krzanich and CFO Stacy Smith said the goal is to reduce costs and improve the profit margins in the mobile chip business, which is in the process of being folded into the PC group. Intel is looking to reduce costs in the mobile business by $800 million. Part of that will happen through the restructuring, a move that will enable greater efficiencies in the supply chain and in staffing, Krzanich said.
In addition, this year Intel will begin selling its SoFIA mobile chips, which will go into smartphones and tablets and will be relatively less expensive to make than the current processors, the CEO said. The company has internally qualified the first SoFIA chips, which will include an integrated 3G modem. Another version that will have built-in LTE 4G capabilities will come out later.
Over the past year, Intel also has partnered with Chinese semiconductor manufacturers Rock Chip and Spreadtrum to help build the SoFIA SoCs.
“As those come in, they take a lot of that cost delta out and that’s why we are feeling fairly good about the $800 million,” Krzanich said.
Going forward, “our key goal for mobility is to improve profitability,” he said, adding that he expects unit growth in the tablet space will keep pace with the market.
“We don’t need to go out and necessarily outpace the market or anything like that this year from a growth perspective,” the CEO said, noting that the goals are to cut costs and increase efficiencies. “We’ll grow at the rate that the market does. I don’t think I want to necessarily shrink, so unless the market shrinks significantly, I think we would then probably try and target more of a flattish [growth rate].”