Posted by: Diana Hwang
Can a huge organization become a faster and nimbler company to capture emerging markets? Intel seems to think so.
After taking the helm as Intel Corp.’s new CEO in May, Brian Kzanich met with the company’s partners to discuss its priorities and strategy.
He is now implementing a strategy to deliver on promises to customers and is being vocal about it.
In the company’s second quarter earnings call yesterday, Kzanich took responsibility for the company moving like molasses when it came to the fast-paced ultra-mobile PC market.
Intel was slow to respond to the ultra-mobile PC trends, Kzanich admitted. The ultra-mobile PC market for devices like tablets is up while the traditional PC market has declined, he explained.
It’s no surprise Intel has yet to reap the profits from this space. Microsoft’s Surface Pro is not the iPad killer yet and Windows-based tablets have only recently arrived.
Intel seemed confident on the call that it can refocus its strategy on capturing new and nascent markets. Krzanich pointed out Intel recently went through a restructuring to flatten the organization and deliver more accountability, elements he sees as critical for the ultra-mobile environment.
He also highlighted a series of product releases the company recently made in the mobile space including the unveiling of the Silvermont microprocessor and shipment of Haswell chips. Intel is also set to ship its Bay Trail chips with vendors expected to come out with new low-cost touch-based mobile devices by the fourth quarter of this year.
What’s interesting is the Silvermont architecture which supports both Windows and Android-based operating systems. This gives Intel a backup plan so that it won’t need to solely rely on the emerging Windows 8 market to support the sagging PC business. The company can do just as well if Android-based tablets capture a good portion of the market. It’s a win-win for Intel, as long as the resulting devices are priced appropriately for the enterprise and consumer markets.
And speaking of Bay Trail, Intel is banking on recapturing some of their declining revenue when vendors unveil new devices based on these microprocessors during the second half of this year. These new mobile devices are designed to capture the low-priced market with touch-based ultra-notebooks coming in sub-$400 and even tablets under $199 and $150.
But here’s the industry’s concern. Could Intel’s aggressive push into the low-cost ultra-mobile device market cannibalize sales of its higher performing Haswell chips and other mobile processors?
“Our view on Bay Trail is that it will not be cannibalistic,” said Krzanich. “It gets [Intel] into these markets that we are not in, in a big way.”
There is a clear segmentation of markets Intel is going after: Bay Trail for low-price ultra-mobile devices and Haswell for the power users or the enterprise. These low-priced devices are aimed at consumers but given that we could see Windows 8.1 tablets hitting $150, this could kick start the Windows-based tablets in the corporate enterprise if users buy the systems themselves and bring it into their companies. It’s BYOD that could play well with existing corporate Microsoft environments.
And, if companies are on a tight budget, why not purchase lower-cost devices, reimage the system and know that it works just as well in their existing environment? Not everyone needs a high performing notebook for data crunching or software development. IT departments could segment their own users based on need and purchase devices through their commercial channels, especially if traditional corporate vendors add the lower-priced notebooks to their lineup. (Of course, this could mean lower margins for the hardware vendors but it could be made up long-term in overall volume).
Whether Intel’s focus on the ultra-mobile PC market gives the company the returns it desires remains to be seen. Their outlook for the second half of the year and hints at new products to be discussed during their November investor meeting place the company on a long-term strategy to reposition itself and become a strong player in the new ultra mobile space. Like any large company, Intel is suffering from growing pains as it adjusts its business to transition into a nimble to capture new markets.
It will be interesting to see how this all plays out. With Intel’s profits down this quarter by 29% compared with the same time last year, the company won’t be able to sustain continued losses in this competitive industry.