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Intel's Tablet and PC Businesses: No Longer Separate, but Far From Equal

The chipmaker has made significant gains in tablets but at a huge cost. And it is still essentially a nonentity in the phone processor business.

Asa Mathat

Intel really, really wants mobile to be a core part of its business.

The company has poured billions of dollars into becoming a force in tablets, with some success. According to Strategy Analytics, Intel was the No. 2 chipmaker powering tablets in the second quarter, surpassing Qualcomm and trailing only Apple.

This week, the company announced it plans to merge the phone and tablet processor business with the much larger PC processor business.

“It’s evolving fast. It was a good time for us to combine the efforts,” said Chris Walker, general manager of Intel’s tablet business.

But if the PC and the tablet themselves look similar, Intel’s respective businesses in those markets look radically different.

Intel’s PC business generated $4.1 billion of operating income on $9.2 billion in revenue. But its mobile unit had an operating loss of nearly a billion dollars on revenue of just one million dollars — that revenue figure is dented by the fact that Intel has been paying tablet makers to offset the higher costs of using its chips.

And while Intel grew its share of the mobile market significantly over this past year and is on track to hit its target of powering 40 million tablets, the company is expected to forecast far more modest growth in the upcoming year, when the company holds its annual meeting with financial analysts on Thursday.

“We expect to see growth,” Walker said, but noted that the tablet market has started to slow.

Earlier this year, Krzanich had thought something on the order of 70 million tablets might be achievable.

Next year will also be a truer test of how Intel can compete on the open market.

Intel has spent this year basically paying customers to use its chips, in large part because it is pushing chips originally designed for high-end tablets into the low end of the market. That means that device makers that decide to go with an Intel chip have a higher overall system cost, which they wouldn’t elect were it not for Intel cutting them a check to cover those costs.

Starting next year, though, Intel hopes to have a chip known as Sofia that is better suited to this market and which won’t require the added costs. In addition to being geared toward this market, Sofia is the first of Intel’s flagship processors to be made outside of its own factories. Intel made that choice to get the badly needed processor to market faster.

Sofia essentially takes a chip design that Intel acquired with its Infineon chip acquisition and replaces the ARM processor with an Intel-designed one. Moving the chip production in-house would have added several months to the process — months that Intel decided it could not wait.

Even before Sofia’s arrival, though, Intel is starting to show up inside more tablets, with more than 300 designs on the market or in the works, Walker said. Two models debuted in Finland this week. Nokia (the part that didn’t get sold to Microsoft) is doing an Android tablet that uses Intel chips, as is Jolla, a Finnish startup founded by former Nokia employees.

The fourth quarter will also see a flood of low-cost Windows models, spurred by work Intel has done but also by Microsoft’s decision to offer its software for free on devices with screens smaller than nine inches.

On phones, Intel remains far, far behind competitors such as Qualcomm and Mediatek with just a handful of announced products using its chips. It will be interesting to see if Intel lays out any sort of concrete target for phone processor shipments.

One key here is regulatory approval for a deal announced to work jointly on phone chips with China’s Spreadtrum.

Whatever share Intel does gain, CEO Brian Krzanich says he wants to do it without having to subsidize things the way it did with tablets.

“I don’t want to do that with phones,” CEO Brian Krzanich said in a September interview. “I would really like to avoid that.”

One consequence of Intel’s corporate reorganization is that it could be harder to tell just how the mobile side of the business is doing. Intel says it hasn’t decided whether it will continue to break out the revenue and profits (or losses) coming from that segment.

This article originally appeared on Recode.net.