Intel Must Update Its Game Plan: 10 Changes to Get Back Into Form

By Don Reisinger

The PC market is in decline. Desktops and traditional PC notebooks are less popular today, and there’s a general sense among analysts that tablets will continue to replace lightweight notebooks. Still, the PC market is huge and extremely important to Intel. The last thing the company should do is move too swiftly to mobile. The right plan now is to remain PC makers’ best friend and ensure Intel products are shipping with every PC hitting store shelves.

Intel’s Data Center Group, which is made up of processors and components for servers, workstations and related products, is on a roll. Last year, the division generated $11.2 billion in revenue, up from the $10.5 billion it made in the prior year. The division was also able to generate $5.2 billion in profits, making up nearly half of the company’s operating income. By all means, Intel, go full steam ahead on data centers.

If one were to examine Intel’s financials, it’s instantly apparent that mobile is conspicuously missing from the company’s division break-out. In fact, tablets and smartphones have been relegated to the “Other Intel architecture operating segments.” Worst of all, that division, which also includes netbooks, Bluetooth and other components, saw its operating loss widen from $1.4 billion in 2012 to $2.4 billion in 2013. Intel didn’t break out its financials in that division by product, but it’s safe to say that something is wrong. And Intel’s general lack of presence in the mobile chip space seems to indicate all the more that the company must do more with smartphones and tablets if it wants to be successful in the coming years.

Intel’s software business—which is made up of McAfee, Wind River and other software products—is quite small compared with its other divisions, generating $2.5 billion in annual revenue. Even worse, it was only able to tally a $1 million profit in 2013. In 2012, it lost $11 million. Given all of Intel’s struggles and its need to focus elsewhere, software looks to be more of a distraction now than anything else.

Ultrabooks, a class of small notebook computers that was dreamt up by Intel and run the company’s chip technology, are expected to see sales grow considerably in the coming years. In fact, the global Ultrabook market could be worth $76 billion by 2016, thanks to its expected compound annual growth rate of 69.2 percent. That’s a huge market for Intel, and it’s something that the company should focus on. The more Ultrabooks Intel can get to store shelves, the more components it sells and the stronger its operation becomes. Stay true to Ultrabooks, Intel.

Google and Intel need to be partners. Last year, Chromebooks accounted for 20 percent of all notebook sales in the U.S., and those are numbers are expected to rise in the coming years. That growth has prompted Intel’s competitors on the mobile side, like Nvidia and Qualcomm, to see if they can cozy up to Google and its vendor partners to take advantage of the success of Chrome OS. Intel do likewise or risk losing out on Chromebooks, too.

Intel is flush with cash. The company ended the fourth quarter with over $11.6 billion in cash and short-term investments and with another $8.4 billion in marketable debt securities. That, along with its stock value, gives it more than enough leverage to buy out other chip makers, companies operating successfully in mobile or ones making an impact in the data center. The time has come for Intel to buy up some smaller companies.

Intel has identified wearable technology as one of its strategic priorities, but the company must move quickly to offer components in that space. As the Consumer Electronics Show earlier this month proved, wearable tech is coming fast and furious. And the sooner Intel capitalizes on that, the better.

Intel announced recently that it will be forced to reduce its staff by roughly 5 percent this year as part of a broad restructuring. Although that should help Intel reduce its costs, the company is still not nearly as efficient as it could be. Intel’s operating expenses grew nearly $1 billion in 2013, while its general costs to build its products went up another $1 billion. Those are key measures in determining how well a company is managing its people. It appears just cutting employment costs won’t be enough to get things under control. Squeezing more costs out of the production process and supply chain will play a crucial role in Intel’s ability to turn things around.

It’s unlikely that Intel will suddenly become a consumer-device maker, but as noted, the company’s Ultrabook concept has worked well in the notebook space. That, of course, begs a simple question: Should the same concept of placing strict restrictions on device specs to be given the special “high-end” brand be brought to the Android space? Google has used the Nexus branding to attract users to its latest software, and Samsung has given its flagship handsets the Galaxy branding. Why shouldn’t Intel attempt to make a broader, high-end line of products available that rely on its processors? Such a move might help the company establish a small foothold in the mobile space.