At Intel's (NASDAQ:INTC) most recent investor meeting, Client Computing Group chief Kirk Skaugen talked about the company's strategy to try to grow its revenue from the PC market. In addition to the usual message about how Intel plans to bring "innovation" to the PC market by helping to enable more interesting form factors and use cases, the company talked about two key aspects of its strategy.
The first is that the company aims to improve its revenue/profitability by trying to sell an increasingly rich mix of PC processors. The second is that the company aims to increase its piece of the PC platform bill of materials through a combination of compelling functionality/components either integrated into its CPUs or separate products sold as part of a complete platform.
Let's take a closer look at this strategy.
Let's talk about segmentation
A key reason Intel has been aggressively trying to segment its PC processor/platform offerings is that the company aims to maintain or even grow its average selling prices. Thus far the company has been quite successful at this, with Skaugen saying the company's average selling prices for PC processors/platforms are up 4.5% since 2010.
Skaugen says there are three key "segmentation actions" that Intel is pursuing.
The first is that the company has shifted the majority (about 80%) of its Pentium/Celeron processors, aimed at the very lowest end of the PC market, to chips based on its lower cost (and lower performing) Atom architecture rather than its Core architecture.
Skaugen indicated that this helped to significantly improve the company's product cost structures in the low end, allowing it to profitably grow its share at the low end of the market (low-cost Windows PCs, Chromebooks, and so on).
Next, Skaugen talked about integration of functionality that was previously handled by stand-alone components. Examples of components that have been integrated into Intel's PC product lines given included graphics, sensor hubs, audio DSPs, image processing engines, and more.
According to Skaugen, whenever Intel integrates new functionality into its chips, the cost savings due to this integration manifests itself in three ways: a boost in chip-selling prices for Intel, a lower total cost for its system partners (i.e., Intel doesn't capture the entire cost of the added functionality), and lower costs to the end consumer.
"Everybody wins in this process," Skaugen said.
Finally, Skaugen talked about the company's efforts to try to get customers to buy systems with more expensive processors in them. For business/corporate users, Intel sells processors with its vPro security and manageability engine, which almost certainly sell at a premium to standard consumer grade chips. Skaugen claims that Intel is selling an "all-time records" of vPro processors (though he wasn't clear if he meant all-time record units or product mix).
Skaugen also highlighted a couple of relatively new changes to the company's product marketing strategy. The first is that the company is now bringing its Xeon processor brand (typically reserved for server/tower desktop workstation chips) to high-performance notebooks, which could potentially improve product mix within such devices.
The next is that the company has changed up the branding of its low-power Core M processors. Instead of simply having "Core M" with some obscure model number (such as the Core M-5Y71), the company has adopted a similar "good/better/best" strategy by offering Core m3/m5/m7 brands (obscure model numbers still included, sadly), mirroring its strategy with its Core i3/i5/i7 series of notebook and desktop processors.
Next up? Increasing share of wallet
In addition to trying to get customers to buy higher-end chips, Intel is also trying to sell additional components into PCs in a bid to increase its average revenue per PC sold.
Skaugen talked up the increased uptake of Thunderbolt in PCs during the Skylake processor generation, claiming there are six times the number of systems in the pipeline using this technology than there were with the previous generation Broadwell chip. Skaugen also said Intel plans to integrate Thunderbolt (which currently requires a separate controller chip to function) into future processors "over the next several years."
Skaugen also discussed Intel's position in both PC Wi-Fi and Wi-Gig. The company is now the top PC Wi-Fi vendor by volume (over 40% share) and Skaugen said, over time, Wi-Fi would be integrated into its processors as well. Additionally, the company offers controller chips for WiGig technology and Skaugen indicated that during the Skylake generation, the number of designs using its WiGig controllers will increase by a factor of 2.5.
Next, Skaugen pointed out that Intel is seeing increased traction of its higher-end Iris graphics technology, which should mean a richer mix of chips.
Finally, Skaugen mentioned that the first solid-state drives based on the company's new 3DXPoint technology (branded Intel Optane) will be "ramping into the marketplace" in high-end enthusiast PCs during 2016, with notebooks getting the technology in the following year.
Ashraf Eassa owns shares of Intel. The Motley Fool recommends 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.
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