Intel CEO Apologizes for 29% Profit Drop, Promises $150 Atom Tablets
July 18, 2013 1:40 PM
Mobile demand is driving Intel into the low-end chip market, the last place it wants to be
Analysts had hoped [
] that Intel Corp. (
), 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
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
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
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
) are expected to be shipping in tablets and hybrid notebook/tablets this holiday season.
Mr. Krzanich boldly predicted the following price points:
: $400 USD
Laptops (w/ touch)
: $300 USD
: $150-200 USD
The big question is whether these devices will be appealing customers. Some $200 USD and lower tablets -- namely, Google, Inc.'s
-- have received good reviews. But current Intel tablets have been priced much higher (for example the
Acer Inc. (
) 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
Intel would rather customers buy pricier
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. (
Intel does power
one of those Chromebooks
($220 USD), which packs a Celeron 847 (1.1 GHz dual-core 32 nm
). 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 (
). Samsung's model was the #1 top notebook seller on Amazon.com, Inc.'s (
) 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
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. (
) 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
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
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.
NYTimes [earnings estimates]
"If they're going to pirate somebody, we want it to be us rather than somebody else." -- Microsoft Business Group President Jeff Raikes
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