Intel's mobile and communications group took in a scant $1 million in
revenue in the third quarter, underscoring the challenge the top
chipmaker faces expanding into smartphones and tablets.
The Santa
Clara, California-based company on Tuesday reported third-quarter
results that beat Wall Street's expectations, helped by a recovery in
personal computers, by far its largest market.
Progress in
Intel's smartphone and tablet strategy was less clear. The mobile and
communications group had an operating loss of $1.04 billion for the
September quarter, worse than a $810 million loss the year before.
The company in recent years was slow to recognize the significance of
the smartphone revolution, and CEO Brain Krzanich, who took over in
2012, has accelerated efforts to catch up by subsidizing costs for
tablet manufacturers that use its chips.
Smartphones and tablets
account for a tiny fraction of Intel's business, but the company sees
staking out territory in mobile as key to emerging markets such as
wearable computing products.
Intel is using its deep pockets to help it reach its goal to see its
chips used in at least 40 million tablets this year, up from 10 million
in 2013.
The vast majority of smartphones and tablets are made
with processors based on rival technology from Britain's ARM Holdings
Plc Britain's ARM Holdings .
Intel's subsidies are meant to
reduce the burden to manufacturers of designing tablets with Intel's
current chips, which require more expensive memory and other components
that it says drive up costs.
Intel says its future chips will be more cost-effective for manufacturers and will not need subsidies in order to sell.
"The strategy is that over time, we think we can give better
performance, more features in that segment of the market and so we
wanted to start the work of building our footprint," Intel CFO Stacy
Smith said in a phone interview.
Besides tablet subsidies,
Intel's mobile and communications group is feeling the pinch from slower
sales of 2G and 3G chips as cellphone makers move to more advanced 4G
technology. Qualcomm has a major lead in 4G technology over rivals
including Intel.
Intel's subsidies have made it the largest
maker of tablet chips after Apple , which uses its own chips in its
iPads, according to market research firm StrategyAnalytics.
On a conference call with analysts, Krzanich said that by year end, Intel might slightly exceed its 40 million tablet goal.
The subsidies, which Intel calls "contra revenues", will drop off as
tablet makers switch to Intel's more cost-effective chips, Intel says.
"Based on the new platforms coming to market in the back half of this
year and early next year, we expect those contra revenue dollars to
start to wane pretty significantly," Smith said.
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