Intel, No Longer Inside

It seems Intel has always been the leader; when purchasing a new home computer, buyers looked for the “Intel Inside” sticker, other processors considered substandard compared to the power of Intel. “Intel Inside” was a brilliant marketing program that, for generations of computers, lured buyers away from cheaper options.  Now, it’s Intel’s very own strength that is turning into a weakness – home computer sales are plummeting and Intel’s revenue is tumbling down with it.

In a recent Wikibon report from CTO and co-founder David Floyer, he takes a look at Intel and how they can survive in the post-PC market, along with the areas the chip maker needs to focus on and develop in order to survive the shift away from PCs and to mobile devices.  The report, Intel Post-PC Blues and Client Support in Software-led Infrastructure, starts with a quick look at some numbers Intel is sure to be concerned with; “Intel’s fourth quarter 2012 revenues were down 3% at $13.4 billion and profits are down 27% overall. PC revenues were down 6%, losing out to increasing consumer demand for smart phones and tablets.”


Intel & rivals in the post-PC market

The numbers don’t get any better; in 2012 there were 370 million shipments for PCs; a number which includes laptops, some tablets, ultra-books, as well as desktop PCs, compared to the more than 780 million post-PC devices compromised of smartphones and tablets.  To this Floyer poses three strategeic questions for Intel:

1. Is this a short-term decrease in PC chip revenues, caused by the recession and lengthening PC refresh cycles, or are more profound market changes appearing that would radically alter Intel-based PC volumes?

2. What are the strategic ramifications if or when traditional PCs are no longer the default client technology to be supported by data center infrastructure?

3.  If ARM processors and technology becomes dominant in the smart client device and PC market, will history repeat itself with the emergence of these chips in data center servers?

The first question is perhaps the most vital, with obvious changes in the market marking the move away from hardware to software.  This move has been redefining the way that servers, storage and networks are designed and built.  And this trend towards Software-Led Infrastructure (SLI) is going to force Intel to change their business model or risk becoming obsolete.

Floyer gives three key assumptions regarding the broader market changes that could determine the full ramifications of Intel in a post-PC world.  First, in early 2014 “licensees of ARM technologies successfully introduce 64-bit Cortex A53 & A57;” second, Apple will announce, by early 2015, that it will be migrating its PCs from Intel to ARM; third, Microsoft, Intel’s closest ally, follows suit by early 2017.  Microsoft will eventually be forced to cut loose its failing tablet and PC market, allowing them to focus on their strengths—client operating systems, the Office Suite, and focusing more keenly on the successful data center software business.

Does Intel fit into an SLI market?

Microsoft’s move to a more SLI-based company will likely mirror the shift that Intel will have to make in order to remain a profitable company.  The post-PC market, whiling having a need for chip technology, just is not utilizing Intel for a myriad of reasons, leaving the company with too little market share to recover from the slow death knell of the PC market.

“[S]hifting attention to ensuring that the low-end of the enterprise server market and the hyperscale server market are covered with aggressive pricing and enhanced functionality,” is one avenue that Intel needs to address for its survival, reads Floyer’s report.  While down, Intel surely is not out,  Cisco has penned a landmark deal with Intel to be the manufacturer of specialized chips to be used to power switches and routers for the company.

Intel is actively working to “diversify its business to offset the current negative trends in PC sales, with forays into software-defined networking and software services,” as noted by the CEO of Intel, following the disappointing 2012 numbers.

Other market trends could be hurting Intel

The recession might be playing a small hand into the woes of Intel, it would be difficult to blame it entirely.  It’s no secret that the recession has caused both individuals and business to cut back on purchasing new hardware.  But during the last four years of stagnant and declining economic growth, the technology space has exploded with tablets and smartphones gaining traction with millions upon millions of users.  While the recession is probably a contributing factor for a lengthening PC refresh cycle, the new technologies are likely also a part of the decline.

There are also other contributing factors that need to be considered, technology is very advanced and where 15 years ago when a new PC model was released speeds and memory increased double, triple, or more giving consumers a more pressing reason to upgrade.  While speeds and memory are still increasing, there comes a point for many consumers where they upgrade not for the faster computer but because their older model has become too outdated to quickly perform the duties the user requires or their current systems have become corrupted due to virus’ or other malicious software.