Back on its fourth quarter 2011 earnings call, Intel's (NASDAQ:INTC) CFO Stacy Smith boasted that 2011 was the second year in a row that the company saw the average selling prices of its PC chips increase. Smith attributed a good part of this upward mix shift to the additional capabilities, such as graphics, that Intel was integrating onto its chips.
These days, most laptops and low-end PCs don't even come with stand-alone graphics chips; the graphics processors that Intel integrates into its processors are generally more than enough. This has allowed Intel to "absorb" the value that a stand-alone graphics chip supplier would capture, helping average selling prices and margins.
Thanks to the folks at CPU World, some fresh new details of what Intel is doing with respect to graphics functionality in future products have emerged.
Let's dig deeper.
Embedded DRAM in future Ultrabook processors
Late this year and during the first half of next year, Intel will be selling processors based on its Broadwell architecture. However, during the second half of 2015, Intel has announced that it will be manufacturing and selling chips based on its next architecture, known as Skylake.
CPU World reports that the 15-watt variants of Skylake intended for Ultrabooks/thin and light notebooks will feature what Intel calls "GT3e" graphics. This will allegedly feature 48 "Gen. 9" graphics processor cores and, perhaps more interestingly, will feature a 64-megabyte on-package embedded DRAM cache.
The motivation behind including such an on-package cache is simple: Graphics processors are well known for needing high amounts of memory bandwidth to deliver optimal performance. As the graphics processors integrated into Intel's processors get faster, so do the memory bandwidth requirements. A relatively large and fast cache helps with that.
Intel first introduced such a cache onto its Core i7 processors with Iris Pro graphics (aimed at high performance laptops such as the 15-inch MacBook Pro with Retina Display), and it seems that Intel is trying to bring this technology to higher-end thin-and-light notebooks.
Revenue upside for Intel
Intel is likely to be able to charge a significant amount more for its Ultrabook processors with eDRAM cache than it can for models without it. While this means that lower cost Ultrabooks won't get these parts, I suspect that premium thin and light notebooks such as a potential late 2015/early 2016 MacBook Air will adopt such processors.
This should translate into upside in the average selling prices of Intel's PC processors, which could help Intel grow PC-related revenue, even in an environment in which PC demand isn't growing all that quickly.
What's next for Intel?
I think what we are seeing Intel do with graphics is just the first step; the company will most likely be looking for any other ways to sell more content into the PC. For example, Intel CEO Brian Krzanich has talked about how he expects 15% of PCs by 2018 to include LTE connectivity. While the potential revenue upside from cellular-in-PCs probably isn't huge, this seems like a fairly straightforward way to grow average selling prices.
Perhaps Intel will talk more about its plans around growing its revenue per PC further at its investor meeting scheduled for Nov. 20.
Foolish bottom line
It would be ideal if the PC market was showing renewed signs of growth across the board. However, if the market does turn out to be a very slow growth or even a negative growth one over the long-term, then Intel will need to focus on delivering more value per PC as well as taking on as much market share as possible.
This is the strategy that Intel seems to be pursuing, and given Intel's financial performance this year, it seems to be working out fantastically for the company. I don't think the story on these fronts has finished playing out and look forward to what the company can do during 2015.
Ashraf Eassa owns shares of Intel. The Motley Fool recommends Apple and Intel. The Motley Fool owns shares of Apple and Intel. 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.