Despite its sparkling balance sheet and dominant market position, Intel is nagged by its late arrival in the smartphone market.
During the investors event, Intel brass properly pointed out that the world of smartphones is about operating systems and apps. Android without its app library is hardly interesting to consumers, so even though Intel ported Android to Atom more than a year ago, it'll take a lot more than that to get app makers to support two versions of their apps, and for device makers to offer phones based on the chips. Intel will need to offer superior capabilities to the ARM chips and make it incredibly easy for app makers to support both devices. A little bribe, err, incentive to device makers wouldn't hurt either, and Intel supposedly will pay incentives to anyone producing Atom-based Androids to the tune of $10 per device.
The story will be better for phones based on Windows 8, which will be a 64-bit operating system with no compatible support for 32-bit chips. Although rumors have come and gone, ARM leadership has said as recently as February that it has no immediate plans for 64-bit chips. That leaves Intel and Microsoft as a combined monopoly for any mobile device based on Windows 8. The upshot is no Atom-based phones until 2012, and even then, they'll most likely be Windows 8 phones. Intel is doing what it can to woo Android phone makers, even showing an iPhone-like device playing HD video and supposedly running Android, but it'll be an uphill battle, with ARM cemented in the Android market.
In its other markets, Intel continues to dominate with no sign of an emerging competitor. In the data center, it has moved beyond servers, with its Xeon chips now found in storage devices from most major vendors, including EMC, HP/3Par, and Dell/Compellent. Crack open the cover of a Cisco Nexus switch and you'll find a Xeon chip managing the switch's control plane, while Cisco silicon handles the data plane. Intel finds itself in the comfortable position of being able to price its chips to offer more bang for the buck than competitors, and inherent support from Linux and Windows.
Intel thinks some of the biggest data center growth will come in high-performance computing and cloud computing, where servers constantly demand the highest-performing CPUs, and a lot of them. While data center growth in terms of servers is modest, the areas Intel says are growing include cloud computing (we assume it to mean cloud service providers) and high-performance computing for applications like simulation and rendering. Of course, storage continues to grow rapidly, and networking seems to be at an inflection point, as many organizations look to do a hardware refresh.
The biggest part of Intel's business is the most uncertain. Its PC business is huge, and Intel sees it growing steadily, particularly in developing markets. It expects its biggest markets to be China, the United States, and Brazil by 2012.
One interesting chart shown at the Intel event predicted rapid PC adoption as system prices approach eight weeks' wages for the average buyer worldwide; Intel estimates that market saturation occurs when the price drops under one week's wages. So as wages rise in emerging markets and PC prices fall, the theory is new markets will present themselves.
However, Intel freely admitted it couldn't say for sure whether tablets would replace laptops or augment them in this scenario. In the United States, tablets have been mostly add-on devices, as users tend to own multiple smart devices, including cellphones, TVs, tablets, and laptops or desktops. But that's no assurance that an emerging market will follow the same path. If Intel's predictions turn out to be correct, the markets for PCs, smartphones, and tablets will all boom. That's a big if, especially as HP reported Tuesday that its second-quarter PC revenue dropped 23%.
The next two years will be pivotal for Intel. The bulk of its business is in the PC sector, which will face new competition from all directions. As bright as its financial numbers are now, you can bet there's a good bit of healthy paranoia behind the scenes.
Art Wittmann is director of InformationWeek Analytics, a portfolio of decision-support tools and analyst reports. You can write to him at firstname.lastname@example.org.
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