It's no secret that the personal-computer market has been on the decline for years. People simply aren't buying as many computers as they used to as devices like smartphones and, to a lesser degree, tablets have taken over tasks that used to be exclusively the domain of desktop and notebook PCs.
Despite this decline, chipmaker Intel (NASDAQ:INTC), which supplies most of the world's PC processors, has been able to compensate for the contraction of PC units shipped by encouraging customers to buy increasingly powerful computers with faster, more expensive Intel processors.
That strategy has worked for quite a while now, and based on the company's most recent financial results, it continues to work out.
Intel CEO Brian Krzanich said on the call that during the quarter the company saw "record Core i5 plus Core i7 client mix." For those unfamiliar with Intel's branding scheme in the PC processor market, Intel has several tiers of products. Here they are, ranked from highest- to lowest-end:
- Core i9.
- Core i7.
- Core i5.
- Core i3.
The Core i9 branding is relatively new to Intel's PC product portfolio, and it's restricted solely to the low-volume but ultra-expensive high-end desktop PC market, so it's not likely that Core i9 products make up more than a minuscule fraction of Intel's business.
The point, though, is that Intel's claim of record Core i5 and Core i7 product mix means that, as a percentage of its total processor sales in the quarter, Core i5 and Core i7 sold better than they ever had previously.
Can Intel keep this up?
I think Intel continues to have an opportunity to improve both its product mix and its average selling prices. An obvious step for Intel to take should be to bring its Core i9 branding, which is currently reserved for the high-end desktop product line, into high-performance notebook computers and even into the mainstream desktop personal-computer market.
If used tastefully, Intel could introduce ultra-premium processors into more segments of the personal-computer market. System vendors could, of course, build correspondingly premium computers around those Core i9 chips. Intel would win because it'd be able to sell more expensive chips to customers willing to pay a premium for Core i9, and the system vendors would win because they'd be able to sell higher-priced systems.
I think this is what Intel will do, and given the successes of Intel's current Core i5 and Core i7 brandings in the personal-computer market, the odds that such a strategy will work are probably quite high.
Beyond aiming to drive a richer mix of products, Intel is also likely to continue to try to integrate an increasing amount of functionality into its chips. By doing so, and eliminating the need for standalone chips, potentially from non-Intel vendors, Intel should be able to charge more for its chips while still delivering a compelling value proposition to system vendors. Examples of technologies that Intel has integrated in the past in pursuit of that goal are graphics, memory controllers, and image-processing units.
There's still opportunity ahead of Intel to continue to boost its product mix and capture more of the value inside each personal computer sold.