Given the background of a fast-shrinking PC industry that has shaken the very foundations of its core businesses, chip manufacturer Intel (NASDAQ:INTC) is certainly leaving no stone unturned in its quest for alternate sources of revenue. While one of them involves increased efforts to make its technology work with the automobiles of the future, Intel has by no means abandoned its hopes to secure a foothold in mobile devices, or more specifically the tablet segment.
However, for a company that recently reported a stunning operating loss of $929 million for its mobile and communications division, convincing investors that its plans are viable is likely to be a tough job. It's time to take a look at the realities that lie behind Intel's current scenario.
The improving tablet chip scenario
Many of Intel's hopes to secure a presence in the mobile devices industry center on its projected sales of chips meant for tablets. Buoyed by sales of around 10 million tablet processors in the previous year, Intel's management has set out a clear goal of selling as many as 40 million units by the end of 2014. After the company already sold 5 million of them during the recent first quarter, Intel's tablet chips are set to appear in products launched by companies such as Toshiba in the upcoming couple of months. The company is also fighting it out in emerging markets such as China by tying up with local chipmakers to make parts for entry-level tablets.
IDC has already lowered its estimated growth rate for tablet shipments to around 12% for the current year, a far cry from the 52% increase witnessed in 2013. A major reason for this has been the rising popularity of 'phablets' -- smartphones with screen sizes exceeding 5.5 inches.
At the same time, Intel has failed to gain a foothold in the smartphone processor industry thanks to industry rival Qualcomm (NASDAQ:QCOM), which has captured more than 90% of the global market for such chips. Qualcomm has already launched its fourth-generation LTE-enabled chips, while Intel is still struggling with its first-generation products in this category.
Having a way with cars
Branching out into other segments, the company is trying a make a major impression on the automobile industry, having recently launched an 'in-vehicle solutions platform' designed for car navigation and entertainment systems. Intel has also revealed long-term goals to design chips meant for self-driving cars of the future.
Although Intel is already an established components supplier to automobile manufacturers. Graphics chipmaker NVIDIA (NASDAQ:NVDA) is also making a dedicated effort to market its latest Tegra K1 chip as ideally suited for in-car dashboard applications. NVIDIA has already witnessed a robust 60% increase in Tegra-related sales from this segment in its recent first quarter and has tied up with major car-makers like BMW, Audi, and Tesla to market its products.
The good part about PC chips
While Intel's core PC chip business did record an increase in operating profit during its recent first quarter, a large part of that can be attributed to companies upgrading their systems in lieu of Microsoft's decision to end support for the Windows XP operating system in April this year. At the same time, investors need to take note of the 3% fall in the average selling prices of Intel's chips. That's one instance of the company being forced to cut down on its profitability to gain greater market share.
However, with data from research firm IDC revealing a further 4.4% drop in PC shipments for the first three months of this year, Intel's success is likely to be short-lived.
The even better part about server chips
Intel's other important server chip division, one of its crucial revenue-generating units in recent months, recorded an impressive 11% year over year rise in revenues during the first quarter. And with server chips being far more profitable than those made for PCs, the company's recent launch of a new line of its popular Xeon series processors does seem like a welcome move targeted at grabbing a bigger section of customers.
The entire server chip manufacturing industry is facing a big challenge in the form of cloud computing -- which has been widely adopted by companies because it eliminates the need to install expensive on-site hardware.
Foolish final thoughts
While Intel is making appreciable efforts to reduce its dependence on the PC and related industries, the company continues to face several headwinds in the forms of increasing competition and changing consumer usage patterns. Given this scenario, the only positive aspects about Intel are its robust financial and advanced manufacturing capabilities.
This is a company with a future still shrouded in uncertainty and investors can do little else than keep an eye on its present developments.