How Intel Corporation’s New Chip Could Revolutionize the Affordable PC

Intel (NASDAQ: INTC  ) has faced a challenging couple years as it came to terms with the notion that the future of computing will not be limited to the traditional PC market. Mobile devices such as tablets and smartphones are here to stay; today Intel's presence in the former is small but growing, while it remains virtually nonexistent in the latter.

However, as Intel hurries to develop competitive chips for the tablet and smartphone markets, those designs -- both directly and indirectly -- are being successfully leveraged to fundamentally improve the value proposition of lower-cost PCs. 

Setting off on the Bay Trail
Intel first developed a line of products under the Atom brand in 2008, intended for very cheap PCs (known as "netbooks") and other types of portable computing devices. Though these Atom processors were much more powerful than the ARM (NASDAQ: ARMH  ) chips available then, they were also not as integrated and far more power hungry.

Intel spent several years tweaking and refining this original Atom, but it wasn't until the 2013 Atom processor core -- known as Silvermont -- hit the market that the project actually seemed like a legitimate effort from arguably the world's most experienced microprocessor design house.

This CPU core served as the basis for a line of chips known as Bay Trail. Bay Trail came in flavors aimed at tablets, low-power notebooks, and low-power desktops. Though Bay Trail wasn't perfect, it offered very competitive processor performance and respectable graphics performance.

More important, though, it enabled decent notebook computers to hit the shelves for about $299.

Braswell takes it a step further
As nice as Bay Trail was, the platform's successor -- known as Braswell -- looks even more competitive. According to leaked details, Braswell will quadruple the number of graphics "cores" on the chip relative to Bay Trail, while also offering greater speed and other enhancements to the processor.

In other words, it'll be extremely powerful. 

Additionally, Intel has emphasized that it plans to bring down the cost of the platform bill of materials -- that is, all the components that the chip requires on the board in order to function -- even further from Bay Trail. The idea is that if the surrounding platform is cheaper, then system integrators can either make systems less expensive or use those cost savings to include more features at the same price points.

What does this mean for Intel -- and the PC industry in general?
Industry trends suggest that while business PCs are booming (no doubt as a result of Microsoft's end of support for Windows XP driving a corporate refresh), consumer PC sales remain soft.

A big part of this softness appears to be the shift of wallet share toward tablets (and, perhaps, "phablets"). However, if Intel and its PC partners can drive down the cost of ownership for a respectable PC or even Windows-powered convertible, then wallet share could shift back to Intel-powered PCs.

What about "good enough" computing?
The big risk here, as always, is the idea of "good enough" computing. If Intel builds its Atom chips to be extremely powerful, then consumers may have less incentive to buy higher up in the stack.

However, it's rarely so simple.

The system vendors -- like Dell and Hewlett-Packard -- want customers to buy higher-end systems, since these tend to carry higher margins than lower-cost, bottom-of-the-barrel systems. For example, in order to upgrade a MacBook Air from a Core i5 to an i7, Apple charges a whopping $150. Intel's official price list would suggest that Apple is simply passing on the difference to its customers, but in reality, system builders such as Apple get substantial discounts to list price.

It's clear that most, if not all, of the key players in the PC value chain benefit when consumers buy higher-end machines. The question is how -- in light of "good enough" computing -- can those vendors continue to sell higher-end systems to the masses? 

Better parts go into better systems
Many Windows PC vendors will typically reserve higher-quality displays, storage subsystems, memory, track pads, and even industrial designs for more expensive Intel Core i5 and i7-based systems. So, even if an Intel Celeron or Pentium based on the Atom architecture is "good enough" for most tasks, system vendors will not typically equip otherwise premium systems with cheap processors.

The good news for the industry is that as chip and platform prices come down, the kind of system that can be delivered at a given price point improves, but at the same time the systems delivered at higher price points will almost always be superior in many ways besides just a faster processor. 

This dynamic, potentially moreso than any actual performance differences (and, make no mistake, those differences are real), is what protects Intel's from the "good enough" monster in the consumer PC space. 

Foolish takeaway
The good news here is that Intel seems to be rapidly advancing its lower-end PC products, enabling significantly higher-quality systems at any given price point -- all thanks to Intel's need to compete in the mobile arena. 

Investors, on the other hand, may be nervous that Intel bulking up its low-end offerings will lead to cannibalization of its higher-end products. However, if the system vendors do their jobs right, this is unlikely to be an issue. Even if it is, though, Intel is better off cannibalizing its own products than letting a competitor outright take share.

 


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