Was This Intel's Biggest Mistake?

There should be no doubts by now that Intel (NASDAQ: INTC  ) missed some key strategic opportunities in mobile computing. The chip giant has yet to make meaningful progress in one of the most powerful secular shifts to seize the industry in decades. The company still relies heavily on the PC market, which we all know isn't doing so hot right about now.

According to a profile in The Atlantic of just-retired CEO Paul Otellini, it didn't have to be this way. Intel silicon could have powered the original iPhone.

What could have been
Shortly after Apple (NASDAQ: AAPL  ) transitioned its entire Mac lineup to Intel processors, ditching the PowerPC architecture, Intel had the opportunity to score the then-mysterious iPhone. At the time, no one could have predicted how disruptive Apple's new smartphone would be, and Otellini certainly didn't expect the unreleased device to go on and change the world.

Otellini recalled, "We ended up not winning it or passing on it, depending on how you want to view it. And the world would have been a lot different if we'd done it." The issue was that Apple had a certain price that it was willing to pay and "not a nickel more," but Intel expected its costs to be above that price. It was the type of hurdle that couldn't be overcome by volume, Otellini believed at the time. The retired exec added, "And in hindsight, the forecasted cost was wrong and the volume was 100x what anyone thought."

Intel is notoriously data-driven with how it approaches strategic decisions. Ad guru Ken Segall attests to that in his book Insanely Simple, having worked on marketing campaigns for a wide range of tech giants throughout his long career, including both Apple and Intel. Otellini acknowledged the weakness in this instance: "The lesson I took away from that was, while we like to speak with data around here, so many times in my career I've ended up making decisions with my gut, and I should have followed my gut. My gut told me to say yes."

Samsung would go on to win the processor spot in the first iPhone, with an ARM11 processor designed by ARM Holdings, in what would prove to be the seeds of a long-lasting frenemyship. Samsung would not only use what it learned to further its own smartphone capabilities, but still continues producing ARM-based processors for Apple to this day -- even after Apple switched to its own custom A-chip designs in 2010.

Passing on the iPhone may have been Intel's biggest mistake under Otellini's tenure.

When it comes to dominating markets, it doesn't get much better than Intel's position in the PC microprocessor arena. However, that market is maturing, and Intel finds itself in a precarious situation longer term if it doesn't find new avenues for growth. In this premium research report on Intel, a Motley Fool analyst runs through all of the key topics investors should understand about the chip giant. Click here now to learn more.


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  • Report this Comment On May 18, 2013, at 7:31 AM, Screws wrote:

    INVENTORS - DO NOT TRUST INTEL

    I invented a CPU cooler - 3 times better than previous best - better than water. Intel have major CPU cooling problems - "Intel's microprocessors were generating so much heat that they were melting" (iht.com) - try to talk to them - they send my communications to my competitor & will not talk to me.

    Winners of major 'Corporate Social Responsibility' awardS!!!

    Huh!!!! When did RICO get repealed?"

    INVENTORS - DO NOT TRUST INTEL!!!

    BTW, I have the evidence - my competitor gave it to me.

    BBTW, I am prepared to apologize to Intel if;

    • They can show that the actions were those of a single individual in the company, acting outside corporate policy, and:

    • They gain redress on my behalf.

    Inventors - help your fellow inventors - share your experiences with companies - good and bad.

    Stuart Saunders,

    IPROAG.ORG Intellectual Property Rightful Owners Action Group

    reform at iproag dot org

  • Report this Comment On May 24, 2013, at 12:09 PM, badkat7 wrote:

    To be heard at Intel you have to be part of the "in crowd" and you have to be offering hardware (aka silicon) solutions that are NOT commodity items. Above all, you cannot attack their x86 architecture even though it is clearly outpaced by ARM in mobile applications. Basically they are the dullest, least innovative company I have EVER worked for in over 30 years in the industry. They are obsessed with corporates chants such as "The value add of Intel Inside" and their once chance to appoint a fresh leader with true industry perspective was passed-over when Otellini tagged a crony from within Intel as his successor. Mediocrity begets mediocrity.

  • Report this Comment On May 24, 2013, at 12:09 PM, badkat7 wrote:

    To be heard at Intel you have to be part of the "in crowd" and you have to be offering hardware (aka silicon) solutions that are NOT commodity items. Above all, you cannot attack their x86 architecture even though it is clearly outpaced by ARM in mobile applications. Basically they are the dullest, least innovative company I have EVER worked for in over 30 years in the industry. They are obsessed with corporates chants such as "The value add of Intel Inside" and their once chance to appoint a fresh leader with true industry perspective was passed-over when Otellini tagged a crony from within Intel as his successor. Mediocrity begets mediocrity.

  • Report this Comment On May 24, 2013, at 12:15 PM, chrisjej wrote:

    I thought Intel's biggest mistake was letting the cat out of the bag with AMD. Good for us consumers - but through away a de facto monopoly.

  • Report this Comment On May 26, 2013, at 8:40 PM, daleinaz wrote:

    @chrisjej: back in the '286 and '386 days, the US gov't required a second source, so Intel licensed AMD. Those rules changed, and so the relationship soured.AMD made a '486 without an agreement with Intel. Intel sued to prevent AMD using the "486" designation, but the courts said you can't get an exclusive trademark on a number alone.Thus the next Intel CPU was not the '586, but the Pentium.

    So Intel didn't "throw away a de facto monopoly" because they had little reason to believe that the x86 architecture would be as important as it turned out to be.

    Apple is brutal on suppliers. Had Intel won the iPad business, it well could have bankrupted Intel.

  • Report this Comment On May 27, 2013, at 5:50 PM, nonononoyes wrote:

    I bet Apple regrets using Samsung as producing mobile chips for Apple certainly gave Apple resources to battle the iPhone.

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