Analyst Stacy Rasgon recently had a chance to interview Intel (NASDAQ:INTC) CEO Brian Krzanich. During the interview, Rasgon asked a number of questions spanning the entirety of Intel's business. What stood out in particular, though, was what Krzanich had to say about the company's efforts in the mobile space.
Recall that the chipmaker previously announced that it had cancelled all of the mobile applications processors that it had told investors about over the last several years: the SoFIA line of integrated applications processors and modems and Broxton, a high-end standalone smartphone and tablet processor.
So, what exactly is going on with Intel's mobile efforts? Let's see what Krzanich had to say.
The strategy in a nutshell
Krzanich said that the company has "made a bunch of investments" in smartphones. At the same time, though, the executive said that the smartphone market is "starting to slow and maybe it's starting to level off."
He also claimed that profitability is "becoming very tight" in the smartphone market, so the goal is for Intel to be "very careful about not getting into that market in a way that's going to erode profitability and erode margin in the company."
To that end, Intel ceased development of "low-end phone products," but will still "continue with the modem development."
In other words, investors shouldn't expect that Intel will build single-chip integrated applications processors and modems for the bulk of the smartphone market. Instead, it will focus on the development of relatively high performance stand-alone modems.
About those modems...
Krzanich claimed that Intel has done "very well with [its] modem." Given that the company's latest modem, the XMM 7360, isn't in any really high profile designs that are on the market right now, that assertion could be a clue that the company has won a spot in this fall's iPhone, as has been widely rumored.
The executive is also excited for the transition from today's 4G technologies to what is commonly referred to as 5G.
"We think 5G is going to be a big transition," Krzanich said. "We believe it allows us to work much better with our [telecom] providers to base station work and grow out networking silicon."
It seems to me that Intel is, likely rightfully, more interested in playing the transition to 5G from the perspective of a networking silicon provider rather than as a phone chip provider. However, as Krzanich said last year, "you have to be on both ends of this network to be considered relevant."
This is a reasonable strategy
It would have been nice if Intel were able to compete effectively in the market for smartphone processors. Even if the margins aren't that great on smartphone chips, competitive products could have driven incremental revenue and gross profit dollars, helping to bolster Intel's bottom line. It would also negatively impact some of Intel's competitors in other areas (such as TSMC (NYSE:TSM)) by somewhat eroding their revenue/unit scale.
However, the current strategy is a reasonable one that's certainly preferable to spending billions of dollars and having nothing to show for it -- the result of the company's previous mobile strategy.
Ashraf Eassa owns shares of Intel. The Motley Fool recommends Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.