Facing a looming challenge to its dominance in the processor business from rivals now selling chips for smartphones and tablets, Intel Chief Executive Paul Otellini argued the semiconductor giant's rivals will face an ‘uphill fight’ for a piece of the market for tablet computers running the next version of Microsoft’s Windows operating system, due later this year.
In 2006, Otellini kicked of an aggressive restructuring campaign at Intel’s investor day in New York City. Six years later, Intel’s shares are trading at a five-year high -- and investors are eager to hear about Intel’s next act. Otellini sketched out a range of growth opportunities in mobile devices, personal computers, data centers, and embedded devices Thursday at the Santa Clara, Calif. chip giant’s annual investor day.
However, Otellini spent a big chunk of his presentation talking about the advantages Intel can a bring to bear in the booming market for smartphones and tablets, where Intel remains an underdog. “We’re just getting started here,” Otellini said of the market for tablet computers, now dominated by Apple's iPad, which relies on a processor design licensed from the UK’s ARM Holdings.
While the next version of Windows will run on ARM-based chips built by Qualcomm, Texas Instruments, and Nvidia -- as well as Intel’s designs -- Intel will continue to enjoy an immediate edge thanks to the broad array of Windows software built to run on its chips.
Over the longer term, Intel is hustling to bring its manufacturing advantage to bear on the market for mobile devices. By 2014, Otellini promises mobile processors built on Intel’s planned 14 nanometer manufacturing technology. These processors will help Intel’s customers build computing devices with form factors that haven’t been seen before.
Otellini and other Intel executives showed off a number of devices built by Intel and its partners that fold, flop, flip and slide into novel configurations. “I don’t think we’ve seen the end state of computing, I don’t think the UltraBook is it, I don’t think the tablet is it,” Otellini said.
Otellini jabs back, predicts "golden age"
The focus on new devices comes as the leaders of competing processor makers have taken jabs at Intel's business model, which couples design and manufacturing to yield powerful processors, and rich margins.
In March, Nvidia Chief Executive Jen Hsun-Huang said Intel should stop trying to compete with cheap ARM-based chips and build Nvidia's designs in its fabs.
In February, AMD's new Chief Executive, Rory Read, suggested Intel's fabs could one day become a liability. “You don’t want to be dragging around an asset base based on a model that might be changing,” Read told Forbes.
Otellini isn't buying it. As the costs of building processors with ever smaller features mounts, Otellini argued rivals who rely on contract manufacturers to build their designs will see their products increasingly commoditized. By contrast, the two or three companies with the scale needed to pay for cutting-edge factories will enjoy a "golden age," thanks to manufacturing advantages rivals can’t match.
Meanwhile, Intel benefiting from booming personal computer sales in emerging markets; and Otellini said there’s more to come. China is now the world’s biggest market for personal computers, and India, Russia, and China all due to become top five markets for computers by the year 2016.
“I would also like to point out to the skeptics in the audience that we have essentially no dependence on France,” Otellini said, making a quip about the European nation’s new socialist government. “Our growth will be very good no matter what they happen to do there.”
Intel shares fell 5 cents $27.15 in Thursday trading.
