The big headline in the tech world to start 2018 was the disclosure of "Meltdown" and "Spectre," security flaws discovered in legacy Intel (NASDAQ:INTC) chips. After the revelations, Intel's head of client computing, Greg Bryant, gave a talk at the Consumer Electronics Show in Las Vegas on Jan. 9, where he addressed investor and customer concerns. Here, in summary, is what he had to say:
- 90% of systems five years old and younger would have fixes available for last week.
- The remaining 10% should have fixes by the end of the month.
- Older systems would then get fixes throughout the year.
- The company doesn't know of a case where data has been compromised.
- While fixes might affect processor speed on some systems, Intel will be working to increase performance once security patches are in place.
However, it's not as if equipment makers will stop using Intel chips, and for those looking at Intel as a contrarian buy, Bryant delved deeper into several aspects of Intel's current strategy. Here are five things he wants investors to know.
1. Segment focus
Many investors may think Intel's performance is tied to the personal-computer market, and there is some validity to that viewpoint. However, the PC market is not some big, monolithic market that moves with economic growth. Instead, Bryant wants investors to know there are many segments within personal computing, and Intel got very focused on four specific segments over the past year: two-in-one notebooks, Chromebooks, gaming, and high-end enterprise. While the overall PC market grew in the high single digits this year, these segments grew by double digits, with the exception of the high-end enterprise -- but that segment is highly profitable.
Focusing on just those four segments and eliminating costs on lower-value solutions allowed Intel to greatly increase its operating margin over the past year:
2. Adjacent markets
Intel is also looking to branch out from its central processing units (CPU) and PC roots into adjacent markets, with integrated solutions for specific use cases. In fact, Bryant thinks Intel has an opportunity to tap a $60 billion total addressable market (TAM) in these integrated solutions markets:
There are direct adjacent share wallet opportunities like my peers have in terms of WiFi connectivity, LTE connectivity attached, Optane memory attached, graphics attached. That TAM is a $60 billion TAM, it's much bigger than just the PC CPU TAM, and I really -- so the other thing I've done with the team is let's go focus on growing in those adjacent parts of the share wallet, if you will.
One of the more exciting growth segments Bryant identified is in gaming. According to Bryant, 1.2 billion people play PC-based video games, and that number increases to 2.2 billion if you count those who play on smaller laptops and phones. In addition, 300 million people watch esports.
Intel has been working hard to catch up to gaming graphics leader NVIDIA (NASDAQ:NVDA), and in November it announced a partnership with AMD, whereby Intel's eighth-generation CPU processors will be integrated with AMD's GPUs and high-bandwidth memory, to provide an integrated solution designed specifically for gaming on notebooks and thin laptops. According to PC Gamer, the solution will probably have leading price-performance characteristics in light notebooks and laptops, while NVIDIA will probably retain its performance advantage in premium desktop gaming.
Bryant was also excited about 5G technology. Intel will be sponsoring the Olympic games this year, where it will showcase some of its end-to-end 5G solutions; however, Intel's 5G products probably won't be ramped up until 2019, and then more widely in 2020. Bryant believes 5G will enable new applications such as autonomous vehicles, augmented reality, and smart cities of the future. This is a topic I've written about before, and Intel is likely to be at the very center of it -- when it happens.
Finally, Bryant confirmed that Intel was on track for its ramp-up of 10-nanometer manufacturing, called Cannon Lake, in the first half of 2018, followed by a wider, more "mainstream" ramp-up in the second half of 2018. The 10-nanometer ramp-up had been delayed a few times in 2017, but Bryant confirmed that the technology should be ready to bring denser CPUs and field-programmable gate arrays to market very soon. Considering Bryant claimed that Intel's 14-nanometer++ process led to a 40% improvement in performance, original equipment manufacturers are likely to be excited about what 10-nanometer manufacturing can bring, even if they've had to wait a bit longer than they'd like.