Last quarter, Intel's (INTC 0.64%) Client Computing Group (CCG), which mainly relies on sales of chips into personal computers, was the star of the show. It delivered 12% year-over-year revenue growth, outpacing its Data Center Group (DCG), which has long been viewed as the company's long-term growth engine.
That growth was essentially entirely driven by the company's notebook chip business. Intel reported that its notebook platform volumes surged 14% year over year. Amplifying that unit improvement was a 6% surge in notebook platform average selling prices.
Image source: Intel.
By contrast, Intel's desktop business was a bit underwhelming. Platform volume, Intel said, dropped 1%, and so did average selling prices.
Part of this dynamic is almost certainly the natural industry-wide shift from stationary desktop personal computers toward more portable notebook computer form factors.
However, I don't think investors should just accept that Intel's relatively underwhelming performance in the desktop personal computer market is totally out of its control.
Here are some steps that Intel can take to help it achieve better growth in its desktop personal computer business.
Profits follow passion
Part of the reason that Intel's notebook business is doing well is that Intel specifically builds products tailored to the needs of that market.
It's thanks to Intel's chip and platform innovations that we can now buy slim notebooks with all-day battery life, and Intel's aggressive innovations here enabled new form factors such as fan-less, ultra-thin notebooks like the 12-inch MacBook as well as the countless 2-in-1 convertible notebook/tablet hybrids that successfully fended off the tablet threat to the PC market.
When Intel focuses its resources properly to fundamentally reshape markets, it can reap significant benefits.
Intel hasn't given this kind of love to the desktop personal computer market.
Its desktop personal computer chips are generally either recycled versions of the company's notebook chips or repackaged versions of its data center chips.
That's right -- Intel seems to care so incredibly little about the desktop personal computer market that it doesn't bother to build products precisely tailored to the needs and the trends of the market.
Now, to the credit of Intel's product teams, the folks in charge of taking these fundamentally notebook-first or data-center first designs and trying to make them into compelling desktop-oriented designs, are trying to move heaven and earth to build salable products.
And, to be clear, they do a good job.
But, the investment at the fundamental chip design level isn't there, and so Intel's desktop processors have been and will continue to be, the best that the company can do -- subject to an enormous number of constraints.
Intel's task, then, is simple: build chips designed specifically for the needs and wants of desktop personal computer users.
Remove those constraints.
Near-term and longer-term implications
In the near-term, building specific chips and platforms uniquely tailored to the needs of desktop users will require a step-up in the company's research and development spending.
Considering that Intel spent nearly $13 billion in research and development in 2016 , and considering further that Intel's research and development spending for the first half of 2017 came in at more than $200 million higher than its spending in the first six months of 2016, I think Intel can afford to build desktop PC-specific products.
Longer-term, though, freed from the shackles of compromises, Intel's product teams should be able to build compelling products for the desktop personal computer market that could lead to both increases in unit shipments (particularly among the power user/enthusiast crowd) as well as increases in product average selling prices.
Either one of those alone would be nice; both combined could drive some impressive business results.
