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As Intel shifts its focus to the cloud, it commands its PC products to fight—or die

Mark Hachman | April 21, 2016
The PC isn't dead...but it's been backed into a corner.

Right now, inside Intel’s headquarters, a deadly serious game of “Gladiator” is pitting Intel’s client products against one another. 

During its quarterly earnings call on Tuesday, Intel said it now expects the PC market to decline in the “high single digits” throughout all of 2016, rather than the mid-single-digit drop it previously expected. IDC and Gartner said recently that the PC market dropped between 10 and 12 percent during the first quarter. “Our projection of the PC market...is more cautious than third-party estimates,” chief financial officer Stacy Smith told analysts.

That’s justification enough to begin extricating Intel from the PC market, Krzanich told analysts. As it has for years, Intel appears to be banking on the continued success of the high-margin data center business, while it seeks a new frontier that could evolve into the next PC: the Internet of Things.

With the continuing decline of the PC, tablet, and smartphone businesses, Intel is coldly evaluating which products will stay, and which will fall. All in all, Intel Chief Executive Brian Krzanich described a strategy for Intel where underperforming products are abandoned and its assets repurposed away from the PC and into Intel’s new frontiers, including the data center (or cloud) and the Internet of Things. When that process is completed, Krzanich said, the company believes it will yield the highest amount of revenue per employee ever.

Intel’s bailing out of the PC market...or is it?

Intel is clear-eyed about the need to grow beyond its PC roots. “We’ve talked about this transformation, that we’re moving from client-centric...to a company that’s focused more on a much broader set of products, and really focused around the cloud,” Krzanich said. “The cloud, and all the connected devices that connect to that cloud. And that connectivity that brings those devices to the cloud. And that includes the PC, but it’s much more than that.”

Currently, Krzanich said, 40 percent of Intel’s revenue and 60 percent of its profit margin already come from outside the PC. “It’s time to make this transition and to push the company over all the way to that strategy and that strategic direction,” Krzanich added. “That’s why we wanted to do it now.”

Intel targets 2-in-1s, gaming PCs

What this doesn’t mean, however, is that Intel is refusing to invest in the PC market. On the contrary, Krzanich identified several key areas where Intel plans to lead. Both 2-in-1s and high-end gaming PCs are growing at double-digit rates, he said. Set-top boxes, where Intel is gaining share, are becoming more like PCs.

All three segments are areas where Intel will likely double down. “It’s not just about cutting cost in the client area,” Krzanich explained. “We think we can become more focused.”

 

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