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Why Intel Was Smart to Sell Its Television Ambition

By Chris Neiger - Jan 21, 2014 at 1:30PM

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Intel needs to move on to bigger and better things -- like wearables and the Internet of Things.

There's no debate competition in the television streaming space is red-hot right now. Both Netflix and Amazon.com boast millions of subscribers and counting -- not to mention award-winning original content from the former -- Roku's box and Apple TV are top-selling streaming devices and Google recently launched its own pathway for sending video from the Internet to the television with Chromecast.

This is why the latest news that chipmaker Intel (INTC -1.53%) is selling its Intel Media division, with its set-top box project, to Verizon Communications is good news for Intel investors.

There are two reasons Intel was just never the right company to see its product through to the end: The company's future revenues wouldn't benefit all that much from a set-top box, and there's far more potential just around the corner.

Innovating in the wrong direction
Intel's OnCue platform was supposed to launch toward the end of 2013, which obviously never happened. The company's 350-person Intel Media team worked hard at producing a cloud TV platform and that Intel has said it was proud of creating, but in the end it realized it was simply moving in the wrong direction.

In order to get the platform off the ground, Intel would have had to curate content from media providers, which it never did, in addition to making an amazing device. And OnCue would have had to be a truly amazing device in order to be a success. With Roku and Apple firmly planted in the space and Google tearing down the barrier of streaming with its $35 Chromecast, media watchers have more options than ever, and at low prices.

Intel would likely have used OnCue to make more of its own chips, but with set-top boxes and streaming sticks at prices lower than ever, Intel would have had to make its device very competitively priced, and that would have made profit margins very slim. Competition shouldn't be a reason to stay away from new revenue streams, but OnCue could have sucked too much time away from Intel and brought in little return.

Though devoting 350 employees to the Intel Media division wasn't necessarily sapping the company's resources, it was still a side project that had no real future at the company. Even Google, which has its hand in everything from mobile to laptops, search, advertising, autonomous cars, and contact lenses that track glucose levels knows that trimming previous ambitions is necessary (R.I.P., Google Reader).

Quark on Edison. Source: Intel.

New tech frontiers
Intel's primary focus right now needs to be on gaining more ground in mobile and staying ahead of the curve in wearables and chips for the Internet of Things. The company showed off some of its promising innovations earlier this month at the Consumer Electronics Show, but its real strength lies in the chips inside those devices. Intel's new and ridiculously small Quark chip is supposed to be 10 times more powerful than its Atom chip and five times smaller. To show off just how small the chip is, Intel put Quark on an Edison development board and fit it all inside an SD card housing.

Wearables will require small chips that can constantly power a device while sipping energy. This is obviously a huge opportunity for Intel if it can win access to the devices companies are creating. Juniper Research estimates that worldwide spending on wearable tech with hit $19 billion by 2018, and it's just getting started.

But the other massive potential Intel has with Quark, if it can grab it, is with the Internet of Things. The International Data Corporation says that by 2020, spending for technology and services related to the Internet of Things will generate $8.9 trillion in revenues. Yes, that's a trillion. The amount of installed base units for the Internet of Things is expected to hit 212 billion by the end of 2020.

So if investors are disappointed that Intel isn't moving into the living room, don't be. Selling its set-top box ambitions may seem like a step backwards to some, but there's plenty of future opportunity for the company. Obviously, Intel isn't promised any revenue from wearables or the Internet of Things, and it will have to fight hard to make gains against strong mobile competitors, but the company does have the potential to benefit from both. And moving away from televisions may just be the first step in the right direction.

Fool contributor Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Amazon.com, Apple, Google, Intel, and Netflix. 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.

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