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Mobile demand is driving Intel into the low-end chip market, the last place it wants to be

Analysts had hoped [source] that Intel Corp. (INTC), the world's largest maker of chips for traditional personal computers, would post revenue of $12.9B USD and a profit of $0.40 USD/share ($2.05B USD).  Instead the chipmaker slumped on slow PC sales, posting a net income/profit of $0.39 USD/share ($2.00B USD) on revenue of $12.8B USD.

I. Intel CEO Admits to Mistakes

The miss might seem small, but for investors it was very unsettling.

The sentiment is that while Intel may be profitable for now, the company missed the major direction the market is heading towards: mobile devices.  Profit slid 30 percent in a year and analysts are wondering if that trend will continue, leaving Intel in dire shape in just a couple more years.  Driving this slide is the trend towards cheap tablets (hybrid tablets/laptops) and smartphones which are cannibalizing traditional PC sales.

Brian Krzanich, Intel CEO [Image Source: AP]

Needless to say, it was a touch quarter for Intel's new chief executive, Brian M. Krzanich.  In an earnings call he offered up a mea culpa of sorts, stating:

Intel was slow to respond to the ultramobile PC trends.  The traditional PC market segment is down from our expectations at the beginning of the year, while ultramobile devices like tablets are up...  At the end of the day, the market will go where the market goes.  We’ve not always lived up to the standards we've set for ourselves.

In the call, he promised lower price points for chips and cheaper devices -- particularly on the low end.

II. $150 USD Tablets With Intel Processors? Intel CEO Promises Big

Key to that effort will be the upcoming sixth major release to the Atom platform.  Manufactured on the latest 22 nm node the quad-core tablet-geared Atoms (core: Silvermont; SoC: ValleyView; chipset: Bay Trail) are expected to be shipping in tablets and hybrid notebook/tablets this holiday season.

Mr. Krzanich boldly predicted the following price points:
  • Convertibles (hybrids) : $400 USD
  • Laptops (w/ touch)      : $300 USD
  • Tablets                           : $150-200 USD
The big question is whether these devices will be appealing customers.  Some $200 USD and lower tablets -- namely, Google, Inc.'s Nexus 7 -- have received good reviews.  But current Intel tablets have been priced much higher (for example the Iconia W3 Acer Inc. (TPE:2357) at $379 USD) yet earned worse reviews.

A big question is how low Intel is willing to go on chip pricing.  Intel typically has charged much higher rates per chip than ARM chipmakers, citing the processing power of its chips

Haswell ultrabooks and tablets
Intel would rather customers buy pricier Haswell based tablets/convertibles, but may be forced to turn to budget models. [Image Source: Intel]
But ultimately the CPU is proving less critical to the tablet experience than other components like the touchscreen, battery, and operating system.  A tablet with a less powerful CPU, but a better screen, battery, and OS is often perceived as superior to a tablet with a faster, more expensive CPU but otherwise weaker specs.

This has come to a shock to Intel, which has long put its faith in the philosophy that the fastest chip built on the best process sells.

Intel and its partners will have to make big changes to have any hope of hitting the price points Mr. Krzanich was advertising in the earnings call.  Take Acer, for example.  It would have to cut $172 USD off the current price of the Iconia W3, which has a 1.8GHz dual-core Intel Atom processor.  That's a whopping 47 percent price cut, and one that will surely demand much lower unit prices from Intel.

III. Chromebooks Surge as Intel Struggles to Adjust

If Intel can't hit those prices, it will likely lose more market share.  The NPD Group reports that Google shockingly scored a quarter of the sub-$300 USD laptop market, capturing about 4 to 5 percent of the market, according to Gartner, Inc. (IT).  

Intel does power one of those Chromebooks -- the Acer C710 ($220 USD), which packs a Celeron 847 (1.1 GHz dual-core 32 nm Sandy Bridge).  But the other Chromebook -- Samsung's $250 USD 11.6-inch model -- packs Samsung's in-house 1.7 GHz dual-core Exynos 5250 processor, which uses an instruction set from ARM Holdings Plc (LON:ARM).  Samsung's model was the #1 top notebook seller on, Inc.'s (AMZN) computers and accessories section and had an average of 4.1/5 stars; the Intel-equipped Acer received 3.3/5 stars and was the #8 top notebook on Amazon.

Acer C7 Chromebook
An Intel-powered Samsung Chromebook at $250 USD might sell at least as well as the current ARM model and is possible, given Intel's efforts to woo Samsung.  Intel recently scored a contract to power a variant of the Galaxy Tab 3 10.1, which runs Google's Android OS.

But even if Intel can win the low end tablet/notebook/hybrid market with a mix of Atom-based Android and Windows devices, it faces a catch-22; those sales may cannibalize unit sales of higher end, higher margin chips like Haswell.

Intel has never had a penchant for the low margin, low-end processor business, which it left largely to ARM's chipmaking coalition.  The fact that it's committing so fully to it now, and even contemplating acting as a third-party contract fabricator for ARM chips shows how fearful Intel's leadership is of low-price mobile devices cannibalizing sales of higher-priced traditional PCs.

IV. Process Lead May Be Lost by 2015

The situation could be growing more dire soon as Intel.  Samsung has reportedly committed to delivering a large volume of 14 nm processors to Apple, Inc. (AAPL) by 2015.  Meanwhile, reports indicate that Intel will shelve its own 14 nm (3D) FinFET rollout till 2015.  Unless Intel surprises or Samsung flinches, this would indicate that for the first time in over a decade Intel might no long have a process lead.  That's insult to the injury that the mobile device pickup has dealt Intel.

14 nm product from Intel is reportedly shelved till 2015. [Image Source: Intel]
In the earnings call Mr. Krzanich says that 14 nm will enter mass-production by the end of 2013.  This indicates a late H1 or early H2 launch of the 14 nm Broadwell may be possible.  But even if Intel delivers, Samsung may not be far behind.

Mr. Krzanich insisted in the conference call that the low-priced Atom push wouldn’t cannibalize Haswell device sales, instead creating new business.  But the reality is that whether it does or not he has no choice -- as he says, "the market will go where the market goes."  

A year ago Intel made $2.8B USD in profit.  This year it made nearly 30 percent less -- $2.0B USD.  With PC sales at an all time low, Intel is diving into the shallow waters of low-budget bargain chips -- the last place it wanted to be.

Sources: Intel, NYTimes [earnings estimates]

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Well if they:
By Ahnilated on 7/18/2013 2:34:41 PM , Rating: 4
stopped putting out chips that only give you a 5-7% performance gain maybe people would be more willing to upgrade more often. I know I have an i7 3770K at 4.5G and there is no way I am upgrading to anything I have seen in the next few years and I like being on the bleeding edge.

RE: Well if they:
By BRB29 on 7/18/2013 2:54:46 PM , Rating: 2
If you haven't noticed, the entire industry is concentrating more on mobile where energy consumption is king. Laptops outsell desktops and have higher margins. Why would intel concentrate on performance instead of power consumption.

I'm guessing you won't see a big performance boost until AMD comes out with something competitive in performance.

RE: Well if they:
By StevoLincolnite on 7/18/2013 8:04:27 PM , Rating: 2
If you haven't noticed, the entire industry is concentrating more on mobile where energy consumption is king. Laptops outsell desktops and have higher margins.

Partly true.
Intels largest profit train is it's server chips, that technology then filters down into Socket 2011.

But even in those segments it's been stagnant performance wise, Ivy-Bridge-E is such a small improvement it's really not worth anyone upgrading to if you're on Sandy-Bridge-E.

I don't know about anyone else, but I would have been more than happy to throw Intel $600-$1000 on a new CPU if there was actually any tangible increases in performance.

RE: Well if they:
By maugrimtr on 7/19/2013 9:31:05 AM , Rating: 2
Ivy Bridge was a shrinking of Sandy Bridge, i.e. the two should be close on performance anyway. This isn't stagnation - just Intel's tick tock process. Honestly, there is little reason to update from Sandy to Ivy unless you need the power efficiency of the die shrink.

RE: Well if they:
By Pneumothorax on 7/19/2013 9:36:23 AM , Rating: 2
It's stagnation when a 'tock' Haswell has about the same performance jump as going from SB to IB. Many of us expected a Lynnfield to Sandy Bridge jump in performance. WE obviously didn't get that...

RE: Well if they:
By jihadjoe on 7/24/2013 3:51:26 AM , Rating: 2
You have to consider that Intel is running out of things to do to make those big performance jumps. We got big gains going from Core2 to Nehalem and then to Sandy because then there were some MAJOR things that got done.

Core2 got rid of netburst
Nehalem finally got rid of the FSB, replacing it with QPI and moved the memory controller on-board
Sandy was a complete re-architecting of Intel's x86 core

So every step that nets a big gain is pretty much done, and once again all that's left is shrinking the process nodes and slowly raising efficiencies and clocks. It's time to get used to small, incremental upgrades.

RE: Well if they:
By Metaluna on 7/18/2013 2:56:55 PM , Rating: 3
Did you even read the article? It is the low-end mobile and ultramobile sectors that are being cannibalized and causing the sales issues. Hardly anybody but the tiny enthusiast market and maybe some professional markets are clamoring for high-end desktop chips. Putting all their R&D resources there is not going to help profits.

RE: Well if they:
By XZerg on 7/18/2013 3:14:00 PM , Rating: 3
you seem to missing the actual point in reality.

The market for wanting higher performance cpu is miniscule in today's user base and is not on the top priority list either. There are lot more important needs that today's cpu needs to address:

1) most systems since Core2 era [including AMD's side] have a strong enough CPU for almost all work.
- obviously there is the gaming, encoding, ... crowd out there that still require latest and greatest but that user base also sees little return since the 1st Core i generation in most of their work.

2) what matters more is performance/watt.

3) #2 was even more emphasized by the huge % of crowd wanting to go mobile [laptops/ultrabooks and now tablets].

4) more demand is for SOC [from #3] and there most people know that the cpu is strong but the igpu is weak. Intel/AMD have been focusing heavily to bring igpu/overall SOC to the level.

5) most importantly, a vastly improved CPU's performance has little benefit to overall system's performance and users' perception. there are lot more bottleneck that severely limit the overall performance of the system than cpu, example harddrives [even ssds], imperfect software to truly tap into the full capacity of cpu's power, vast # of users themselves are no great at using the computer optimally either, ...

So no - cpu's performance isn't all that important for garnering more sales. it is providing a better solution overall to cater to the demands.

RE: Well if they:
By YearOfTheDingo on 7/18/13, Rating: -1
RE: Well if they:
By Ahnilated on 7/18/2013 11:59:43 PM , Rating: 2
Who in their right mind still uses 32 bit on a 64 bit system?

RE: Well if they:
By YearOfTheDingo on 7/19/13, Rating: 0
RE: Well if they:
By Azure Sky on 7/22/2013 10:05:35 PM , Rating: 2
thing is, is if a system comes with 32bit windows preinstalled, you can install 64bit windows and activate it without any issue, they use the same keys( in the case of oem systems, opatool or oemtool will install the cert and key for you so you dont gotta do commandline bs)

also, alot of people that stick to 32bit do it because they have been given bad advice by idiots like somebody who use to be part of my forums, this genius insisted 32bit was a better choice because nobody can address extabytes of ram anyway, and most software is 32bit still, he also claimed 64bit had no other point but addressing more ram...

hes well known on some forums as APK or AlicStar(sp?) hes banned on most of the big forums, he gives horrible advice, and is really really stuck in his ways, he flat out refuses to admit 64bit has any validity....mostly because till recently, delphi his prefered language(aka pascel) didnt have a 64bit compiler.....

he actually went postal and got banned from my forums because of his BS, mostly due to the 64bit thing......even with numbers in his face he just kept saying it wasnt true......

he tells people to stick to 32bit for better driver and software support *bangs head on desk* and many morons do.....

but this is also a guy who had 256mb of ram with server 2003 and a 512mb ramdrive(pci) and refused to upgrade because it wouldnt help (he insisted it wouldnt...LOL)

so yeah, dont blame all users, some get truly horrific advice from truly stupid people.

RE: Well if they:
By XZerg on 7/19/2013 6:57:57 AM , Rating: 3
microsoft did what was right for the entire industry, not few select folks. and no i do not believe the 32bit OS is the big bottleneck nor is the 4gb limit. Heck 90% of the world still can do fine with just 32bit and the 4gb limit, not everyone is a heavy user. Point-in-case Tablets and their huge success even with measly <2GB ram and a cpu that is barely capable of competing against Core i3s.

PC market is stagnating because there hasn't been a real need for higher compute power or a real "next" generation computing. Most people's use cases were perfectly addressed over 5 years ago. Hell if it wasn't for viruses or system failures or user created mess, most would still not have upgraded their computers.

As far as it seems, people really need a next generation in computing that will actually use the higher performance that computers offer compared to 5-10 years ago. an analogy would be cars. you don't see world jumping on to hybrid or electric cars yet, it is still a niche and most people are doing just fine with their regular cars. give people teleporting cars and watch them snap up those cars in blink of an eye - that sort of next generation computing. Performance need hasn't been the king for many years for smoe joe.

RE: Well if they:
By YearOfTheDingo on 7/19/2013 2:35:49 PM , Rating: 2
The main benefit of a 64-bit environment is not that it permits more than 4gig of memory. It's the larger memory address space. As it is, one can't even map one movie file into memory for fear of breaching the 2gig limit. There are a lot of things that programmers can do when the memory address space is large enough to cover the entire extent of the hard drive.

RE: Well if they:
By Azure Sky on 7/22/2013 10:29:42 PM , Rating: 1
you are incorrect, but let me explain why.

1. the 4gb limit isnt what you seem to think, windows counts memory on devices like videocards to that limit as well, it also has a limit to how much of that memory an application can address, under 32bit windows that is 2gb(in some cases less)

2. tablets such as arm based units can get away with less ram because of how programs are coded for them and how memory is managed, long story short, more ram would help them but, not as much as it does with desktops at the moment.....arm went 64bit a while back, just waiting for all the old 32bit arm cpu's to be flushed out of the market.

3. as far as upgrades go, true and untrue.

As a computer tech/IT guy since the mid 90's I can tell you, many people are still fine with quite old systems, those who just email and once in a while type something up, surf a bit, can be fine with a slow old system.

I have clients like that, Infact, over the weekend I wiped an old dell p4 2.8ghz system for a client and upgraded it from 256mb ram to 1gb, then did a clean install of vector linux(and updated it), hes quite happy with it, its more then fast enough for her uses(90% of the time youtube for videos of old music 10% for craigs list and email)

On the other hand, I have a system next to me from another client who does some minor video editing, its an old p4 3.2ghz, already had 2gb ram, hes finely admitted he needs to upgrade, I gave him 3 options, hes decided to go AMD because of price and upgrade path, hes trying to decide between a 6800k and 8320, hes contacted the vendor of his favorite video editing/encoding software to find out what they think would be better for his needs.

hes been struggling along with this p4 and a core2duo laptop (very slow first gen low end c2d, not much faster then the p4) because he just couldnt justify buying anything newer....but after having me run a quick test for him, he about cried when he saw how much faster my system was when limtied to 2 cores vs the p4(that he still insists has 2 cores....LOL)

he also has a nexus 7 tablet and for his email and such its perfect...for other stuff, its not...

Really, if MS had dumped 32bit support with vista it would have been a godsend to the PC industry, 64bit drivers would have matured quicker for vista(biggest problem vista had was systems with to little ram and shitty driver support), it also would have driven application developers to create more 64bit software....

even a slow cpu running 64bit can be faster then cpu's a few steps up running 32bit.

I say this with one very easy example in mind, the 64bit ogg vorbis encoder I use (found on rarewares/hydrogen audio), 32bit versions quite noticeably slower, despite the fact its compiled with the same compiler and the data sets used are quite small in most cases(single songs).

most people with 5+ year old systems could benefit from 64bit windows and a memory upgrade, if the system cant take 64bit, then it needs fully replaced as a primary work desktop.

One company I did some consulting for a few years ago actually was going to use 32bit windows, but, after some testing in a dual boot lab environment they decided to go with a min of 4gb ram rather then 3, and use 64bit company wide, because though it only sped the systems used for reception/secretarial up a small bit, as you moved up the tiers bottom to top the diffrance grew quite noticeable pretty quick, their design guys got 8-16gb ram, minimum systems got 4.

now some asked why they did that, they also gave each system for people doing actual work 2 monitors at a minimum of 1600x1200 res each(after letting them test 1680x1050 vs 1600x1200, management decided they liked 1600x1200 alot better, and even went with IPS displays that caused less eye strain), the cool part was in testing, they found that peoples productivity in 3 months testing(test group) on the new setups the minimum gain was over 25% boost to productivity, some it was almost doubled, those people where given higher res monitors and a 3rd screen, from what the guy I did the work for says, they have continued to track that and do the same thing for those who find more screen space=more work gets done.

they also dont block sites like facebook or youtube, but if your found to have them running and have productivity issues, you get 3 strikes then your out the door.

you where correct to a point, but 4gb ram really is a wall, even notice it on my mothers laptop that only runs 2-3 apps at a time...browers alone can eat that up pretty fast with multi tabs open.

RE: Well if they:
By Arsynic on 7/18/2013 3:49:23 PM , Rating: 1
Don't ignore the obvious. This has jack and shit to do with whatever is happening in the declining PC space. Intel is out of its comfort zone when it comes to a market that cares less about "jiggahertz" and more about battery performance, weight, price and apps.

Intel could release the fastest tablet chip in the world, but if it only gets 5 hours battery life and cost $1,000, it's a dismal failure.

RE: Well if they:
By Azure Sky on 7/22/2013 10:40:17 PM , Rating: 1
i duno, I think alot of the people I know would be happy with 5-6hrs battery life if the tablet was fast and had a great screen/sound/exct.

the problem is more as the artical points out, that at 1k, the tablet would likely still suffer from some points where the hardware backing the cpu up was shit, because they have to cut corners to afford the intel cpu and keep profit margins high.

I have been slowly seeing this tablet thing starting to turn the other direction, more people complaining their ipads and android tablets and smart phones cant do everything they need/want, so they have been looking for a good value desktop or laptop(even the laptop things startign to show some turn for some users, due to higher fail rates in laptop hardware and cost of repairs being a good bit higher and slower)

the fact is this is all cyclical I dont buy into this "the desktop is dead" crap, just as I never bought the crap jobs put out about the desktop being dead because the iphone was amazing...(As they kept selling macbooks and mac pro's...)

just as I never bought the "laptops are the future" crap, the profit margins on them are thinner then desktops and they cost alot more to fix/upgrade on average, alot of users have started to notice that the cost of repairing a laptop many times is very close to, or more then just buying a new one...

RE: Well if they:
By rudolphna on 7/19/2013 12:58:07 AM , Rating: 2
Heh it's worse than that. I'm still on a 2500k with no plans to upgrade for probably 2 more years at the very least, possibly longer. :P

RE: Well if they:
By jjmcubed on 7/19/2013 7:33:23 PM , Rating: 2
As someone on an E8600 Core 2 Duo, I wish I had your chip!

"Nowadays, security guys break the Mac every single day. Every single day, they come out with a total exploit, your machine can be taken over totally. I dare anybody to do that once a month on the Windows machine." -- Bill Gates

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