As Intel shifts its focus to the Cloud, it commands its PC products to fight - or die

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 , 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 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, Intel Chief Executive Brian 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, 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.

What this means: Reading the tea leaves, it seems likely that Intel will gently remove itself from the low end of the PC market and concentrate on higher-margin products. This could be a shot in the arm to AMD, who might be able to make up through volume what it’s lost to Intel throughout the years. But the bottom line is that there’s going to be some brutal infighting going on soon within Intel, where jobs will be on the line.

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

“We’ve talked about this transformation, that we’re moving from 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.”

As part of the process, the company has asked Renduchintala to evaluate which areas of the PC are worth investment. Renduchintala joined Intel last November, as president of a newly created Client and Internet of Things (IoT) Businesses and Systems Architecture Group. Part of his job, according to Krzanich, is to evaluate which parts of Intel’s roadmap make sense, and to report back in the “near future," Krzanich said.

Krzanich warned that not all products would survive the process. “I’m sure as we’re going through this that there will be some products that we’ll exit from,” he said.

Manufacturing issues give Intel headaches

Separately, Intel is grappling with its inability to keep up with Moore’s Law, which originally predicted a shrink in process technology every two years. Intel's actual record has varied from 18 to 36 months.

As such, Intel has added a stopgap part, “Kaby Lake,” due to begin production later this year on its existing 14-nm technology. But a leaked memo also points to several new products in development: Kaby Lake and its successor, the 10-nm Cannon Lake, but also Ice Lake (the second 10-nm chip) and two others, Coffee Lake and Glenview, which the memo did not describe. One question will be whether Coffee Lake will be a third 10-nm part, or the first 7-nm product.

The layoffs will have no impact on Intel’s process roadmap, Krzanich said. “I can truthfully tell you that we’re constantly trying to get back to two years,” Krzanich added.

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