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Intel faces a dark post-PC future

The PC may not be dead yet, but as mobile devices continue to outstrip conventional desktops and laptops in volume, growth, margin and mindshare, industry stalwart Intel finds itself in the unfamiliar position of having to realign its business model.

The chipmaker whose designs underpinned the PC revolution for over three decades now finds itself strangely out of place as a new generation of smartphones and tablets picks up where the once-unassailable PC reigned. As much as its processors dominated the market for conventional computers and servers — they run 80 per cent of the world's PCs — they haven't made the leap to mobile devices, leaving Intel on the outside looking in.

Mobile takes the lead
Intel's prospects are compromised. According to data from IHS iSuppli, a market intelligence firm, PCs consumed 49 per cent of the world's supply of DRAM in the second quarter of 2012. While that was down only marginally from 50.2 per cent in Q1, it was a symbolic: the first sub-50 per cent showing since the 1980s. The trend is expected to continue, with PCs projected to account for 42.8 per cent of global DRAM consumption by year-end 2013. IHS iSuppli memory analyst Clifford Leimbach says this doesn't mean the imminent end of PCs as a notable market force. But attention is already shifting elsewhere.

"The arrival of the post-PC era doesn't mean that people will stop using personal computers, or even necessarily that the PC market will stop expanding," he said in his report. "What the post-PC era does mean is that personal computers are not at the center of the technology universe anymore — and are seeing their hegemony over the electronics supply chain erode. PCs are no longer generating the kind of growth and overwhelming market size that can single handedly drive demand, pricing and technology trends in some of the major technology businesses."

Unfortunately for Intel, its very future is inextricably connected to the future of the PC. Its x86 architecture, long the backbone of PCs and servers, hasn't transitioned to the emerging class of smartphones and tablets. In this market, Qualcomm and Samsung Electronics dominate, using designs licensed from British chipmaker ARM Holdings, with Intel slotting in behind.

Growth flattens out
Gartner says global PC shipments of 87.5 million in the most recent quarter were down 0.1 per cent over the year-ago period. Intel's largest customers, Hewlett-Packard and Dell, whose sales were off 12.1 per cent and 11.5 per cent, respectively in the quarter, have hit hard times as uncertain economic conditions in North American and Europe have sapped demand. The company recently trimmed its annual sales projections — and missed already-reduced sales forecasts in its latest quarter — as skittish consumers and businesses in established markets held onto their older computers longer.

Investors have noticed. It's been 12 years since Intel's stock peaked at $73. It now trades just above $23, off $17 per cent from its 12-month high in April. Shrewd tactical execution, like laser-sharp focus on energy-efficient server chips for the growing cloud market, helped the company's data center group increase sales 15 per cent last quarter. But as the broader market continues to evolve away from the company's core areas of strength, individual bright spots won't compensate for Intel's missing the mobile revolution.

Intel hasn't been sitting idly by, however, waiting for the inevitable. Last year it launched its Ultrabook initiative, designed to create a new reference standard for thin and light notebooks with power-efficient processors, solid state drives and leading-edge components. Aiming largely at the high-end space now dominated by Apple's MacBook Air, Intel pledged $300 million in marketing support for its hardware partners, an effort largely designed to convince consumers that now-commoditized laptops based on Intel architecture and Microsoft's Windows operating system could be aspirational products once more.

Not enough, yet
Unfortunately for Intel, Ultrabooks have failed to garner significant market share. Launch targets of 40 per cent consumer market share by the end of 2012 remain unmet. Intel and its partners won't confirm specific numbers, but Gartner principal analyst Mikako Kitagawa, wrote, "Despite the high expectations for the thin and light notebook segment, Ultrabooks, shipment volume was small and little impact on overall shipment growth."

Intel isn't walking away from mobile, however. At its Intel Developer Forum in San Francisco last week, it announced details for its upcoming Haswell chip, due next year. Compared to current Ivy Bridge processors that consume 17 watts, the new chips draw 10 watts, which Intel says could potentially double battery life. Ultrabooks themselves will get a boost later this year as Microsoft's new operating system, Windows 8, ships, and new touch-enabled hybrid laptop designs hit store shelves.

It'll take more than updated versions of conventional hardware and software to solidify Intel's future, however. Nothing short of a full-on shift into smartphones and tablets — and other yet-to-be-debuted mobile form factors — will reinvigorate the company that once defined the computing space.

Carmi Levy is a London, Ont.-based independent technology analyst and journalist. The opinions expressed are his own.