Intel is in a fight for its very existence. Not today, not next year, but eventually the PC market as we have known it -- the way most people have gotten access to data and computing -- is going away.
Intel sees the future, and that picture doesn't have the company's traditional types of microprocessors as the foundation of computing. Mobile will rule and that's why Intel must get heavily into netbooks, tablets, and smartphones. The question is whether the move is too late to keep the dominance the company has come to expect in its markets.
Netbook feverFirst -- yes, Intel does sell many millions of chips to netbook manufacturers. As the New York Times story indicates, it's a huge market:
"Netbook shipments will be heading north of 100 million and we'll all soon will find out what kind of market potential there is for tablets and these increasingly popular hybrid designs," [said a company spokesperson]. "It makes sense for us to sharpen our focus on these friends of the PC, and Doug's experience running a similar and very successful embedded division makes him the right guy to lead the group."What the story fails to say is that the expected market will not be all Intel, especially as tablets take off and begin to carve away large chunks of the netbook and even PC market. That's not what Intel CEO Paul Otellini would say:
I don't think, at the end of the day, tablets are cannibalizing it. They are not replacements for notebooks. They are a competitor for discretionary income disposition. So you walk into Best Buy and you've got $400 burning a hole in your pocket, or in the case of the iPad, $600 burning a hole in your pocket, and you want to buy something cool for Christmas for your wife or kid or something. It's a competitor.
Evolution of user needHe certainly has a point when he says that PCs are unlikely to completely disappear and that tablets are a different category of device. At the moment, a tablet is a discretionary purchase, as he says. But then, PCs initially were as well -- until people started to understand what they offered.
That's what is already happening with tablets, and the learning curve will be very short, with so many people comfortable with computers and smartphones as it is. As people realize how much they can do on smartphones or tablets, they will also understand how seldom they may need to carry a full PC.
At this moment in the industry, one of the few certainties is that PCs will lose their importance as a primary form of personal computing. And that's bad news for Intel, because it is nowhere near established as the leader for the PC's replacements.
Intel outsideThe Apple (AAPL) iPad uses the company's own custom chip. The Samsung Galaxy Tab that sold a million units in two months runs on chips that use an ARM architecture. Google's (GOOG) Chrome OS Cr-48 netbooks that are being used for testing use an Intel chip, but will manufacturers that adopt the operating system go in that direction? Who knows? And Microsoft (MSFT) has a license to use ARM architecture to develop its own chips. Smartphones are even further away from Intel processors.
This isn't the first time that Intel could see a massive change from the status quo. In the 1960s, the company was in the semiconductor memory business, but existed when former CEO Andy Grove and others realized that the market would be completely commoditized and that microprocessors were the future.
Now the company needs a different solution. Mobile computing devices will need processors that are fast, cheap, and low-powered. Forget about taking refuge in a premium priced product. I wouldn't count Intel out by any means, but this will be a difficult problem to solve, and to accommodate the changes might require an entirely different Intel: new structure, new product mixes, new sets of talents, new budgets.