The Wall Street Journal recently reported that Intel (NASDAQ:INTC) will be merging its mobile chip development operations with its PC Client Group in order to form a new group called the "client-computing group." While some have gleefully claimed that Intel is quitting mobile, this couldn't be further from the truth.
So, what's actually going on? Let's dig in.
The "merger" is nuanced
The first thing to keep in mind is that Intel isn't just lumping the mobile group into the PC group. What it appears to be doing is taking the organization that develops core mobile computing IP (excluding communications) as well as the mobile system-on-chips themselves and putting that under the new "client-computing group."
The folks responsible for the development of wireless technologies such as cellular basebands and Wi-Fi connectivity will actually be split off into a separate wireless research and development organization, according to the press release.
Moreover, and the "real" reason for this "official" change, is that Intel appears to be implementing a "management change" for the mobile group. This reorganization puts the mobile system-on-chip and platform development efforts under the watch of Kirk Skaugen, who currently leads the PC Client Group and who had successfully led the data center group for several years.
This all makes sense
Quite frankly, Intel fundamentally reorganized its entire chip development organization quite some time ago, according to Intel's Josh Walden at the London Analyst Summit earlier this year. What Intel's internal development "structure" roughly looks like is as follows:
- An IP development group that produces the important "building blocks" for various system-on-chip products spanning mobile computing to servers.
- A system-on-chip integration group, which takes the IP blocks developed by the aforementioned organization and puts together the right chips for the right market segments.
In fact, if you want some concrete evidence of this, look at the following corporate biography of Intel Fellow Per Hammarlund:
For those of you who don't know who Hammarlund is, he was the chief architect on the highly successful Haswell processor. Notice, though, that while he is listed as the "Next-Generation Processor chief architect," he is also now the "Chief SoC architect" and is "responsible for [platform engineering group] products spanning from phone to server."
So, whatever "re-organization" Intel is announcing doesn't fundamentally appear to change how the development is being done at Intel -- Josh Walden indicated at the London Analyst Summit this has already happened -- but it will change who is ultimately responsible for the high-level business decisions with respect to Intel's mobile processors.
Will Intel combine the financials?
One possible explanation that I have heard for this "merger" of PC and mobile is that Intel wants to "hide" the substantial losses that it is incurring pursuing markets. While Intel could indeed "hide" those losses, do keep in mind that Intel would also mask the true profitability of its PC-focused products -- there's no such thing as a free lunch.
That said, there's another angle to consider. Intel has often talked about the "blurring of the lines" of the various computing form factors. In fact, former Intel CEO Paul Otellini said it best in a 2013 conference call with the following statement:
Micro architecture is hard and it's something we've got 30 years of experience at, and these devices are simply becoming very small computers and that's what Intel is exceptional at.
I fundamentally agree that phones, phablets, and tablets are just "form factors" of PCs, so philosophically combining the groups makes sense. However, since the mobile financials are so terrible right now, combining the financial results would only serve to mask how strong the profitability of the core business is. Intel should probably wait until its mobile division has gained traction before merging the financials.
One thing that is clear, though, is that Intel isn't quitting mobile, it's reorganizing its efforts there. Whether this reorganization will ultimately lead to long-term financial success in the mobile market is the open question.
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.