Intel's laying off 12,000 people: Five hurdles Intel faces in the near future

It's not plain sailing for Intel as it plans to realign its focus away from the PC market and towards data center and Internet of Things divisions

There have been indications over the years of a rocky road ahead for Intel - and it faces some intriguing challenges to retain its dominance in the chip market.

From the emergence of smartphones to the perception of Intel as a monopolising juggernaught, here are a few of the factors Intel will have to face up to in the coming years.

The steady decline of the traditional PC market

We've seen traditional PC vendors like Dell and HP understand that the landscape's been changing over the years. Shipments worldwide have been decreasing - with recent Gartner reports pointing to a 9.6 percent global decrease and a 10 percent quarterly decline in EMEA over the last year.

Intel famously trounced its rivals, some would say by whatever means necessary, to gain the lion's share of this market. But consumer demand is unlikely to match anything seen in the heights of the PC market's heyday.

While we saw Intel have a good go at rebranding the personal laptop as the Ultrabook several years ago, this has failed to be the boon it hoped for. And although it bet big on Chromebooks, this too couldn't stem wider market declines.

Mobile

A spokesperson for Intel once told me it's not about being first, it's about being best in the market.

But Intel has consistently failed to carve out its niche in the smartphone market. As of 2016, it's estimated that there are more than 2.5 billion smartphone users on the planet. This is only set to increase, and especially in the vital emerging markets where rural access to the internet counts on mobility as an alternative to traditional wired infrastructure.

In typically confident Intel fashion, the chip maker has asserted over and over again that it has the means to swamp the smartphone market with its product. But handset makers are opting for affordability, flexibility and performance in other options like ARM. Intel simply slept on mobile until it was too late and has been trying to claw back influence for years. But can Intel afford to lose this huge market in the long term?

Hyperscale threat

Intel's decision to cut 12,000 jobs has been labelled as a shift away from the declining PC market, increasing its focus on data centre sales instead. But it faces some challenges here too.

While Dell and HP are currently among the biggest chips buyers in the world, hyperscale data centre operators such as Google are accountable for more and more of global server sales.

Interestingly, Google has let fly some indications that it might be considering Qualcomm chips, with rumours of a partnership announcement between the two earlier this year. This didn't turn out to be the case - but there's still talk about Google planning to diversify.

However, Google did announce it was considering using IBM Power chips at an Open Compute Project event a few weeks ago. It all adds up to suggestions one of the most influential hyperscale businesses is looking at options other than Intel, and from its perspective, if Google and others can grab price reductions through greater competition with Intel, at the scale they're running at the situation would be a winner.

Such events could be a clear marker for others to follow suit. Heavy hitters like Facebook and Microsoft, along with some of the biggest banks, are all active members of the Open Compute Project. And moving away from Intel would be likely to filter down to other businesses over time.

For its part, Intel has been trying to woo hyperscale providers, but there is a risk it could lose influence nonetheless.

Artificial intelligence, too, is set to become more of a part of our everyday lives, and it's going to be quite reliant on the cloud due to its processing demands. This is another big area for Google.

Arguably, Intel's chips are not seen quite as suited to running AI tasks compared to, for example, Nvidia. As cloud usage here grows - whether that's AI or IoT driving it - there are uncertainties about Intel's place at the table.

Moore's Law

There's an argument doing the rounds that Intel cofounder Gordon Moore's rule that chip transistors will double roughly every two years is losing its relevance in the semiconductor industry.

And, although the law has proved somewhat flexible in its definition, it's slowing enough to spark some concern about the role Intel will be able to play in the future. Transistors remain important but they're no longer the be all and end all in silicon, production is becoming ever more expensive, and that's in materials and in the fabrication itself.

There are a number of potential replacements for silicon chips - from graphene to quantum computing - but doubts remain over the commercial viability of all of them. Nevertheless, uncertainty around the chip market is unlikely to be good for its most dominant player.

And Intel's roadmaps are already becoming longer and less predictable too - having recently moved cycles from tick-tock to tick-tock-tock.

Monopoly

Intel's friends are arguably alliances of convenience. The company all but booted out its rivals in its traditional core areas, generally leading to the choice of Intel or, er, Intel.

It wouldn't be entirely surprising if some of these long-term alliances started to look elsewhere if presented with a decent economic case for doing so. Just as vendor lock-in is an issue for the cloud, the same can be true for hardware.

The rise and rise of a viable alternative to reliance on Intel architecture could open up opportunity for traditional partners to gain some leverage in pricing and, in turn, bloody Intel's nose in markets it has previously taken for granted.

But remember - Intel's far from done

All of the above isn't to suggest resilient Intel is done for. The chip maker has enough R&D cash to spend in areas it has spotted either threats or opportunities, but Intel's performance in mobile does show that spending alone isn't the way forward.

Financially, Intel's revenues are up year on year - at nearly $US14 billion in total - and with operating income of $US2.6 billion it is still clearly highly profitable, if not quite profitable enough for the investors (to the tune of 12,000 jobs).

In its Q1 financial filing, Intel boasted of strength in its datacentre and Internet of Things groups. Intel understands that there are massive opportunities in smart platforms and the cloud as the planet hurtles toward a reality of a connected world. Its overall market standing is healthy and Intel is maintaining domination status in servers.

We're in no doubt that Intel has a plan. But these are developments that, if not tackled head-on, could well shake up Intel's standing in the chip industry, with all the repercussions that would entail.

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By Tamlin Magee

Computerworld UK
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