Investors following Intel (NASDAQ:INTC) know the company has been trying for years to become a relevant player in the market for mobile processors. The company has been fairly successful in growing its share in the tablet market -- though it is now trying to maintain its share while improving its cost structures -- but it's still essentially irrelevant in the much larger (and healthier) market for smartphone processors.
Being in the mobile business has been quite expensive for Intel: If the company meets its goals for 2015, its cumulative losses here over the last three years will be approximately $10.56 billion. By the end of next year, if the company hits its loss reduction target, that cumulative loss will increase to around $13 billion.
During a question-and-answer session with Intel CEO Brian Krzanich during the Credit Suisse Technology Conference, the executive gave Intel's rationale for staying in this business. And, frankly, it was quite surprising.
Intel wants to continue to boost its share of the networking chip pie
In order to understand Krzanich's reasoning, it's worth understanding one of the areas Intel is trying to take share in: the market for networking silicon.
According to one of the presentations given at Intel's August Data Center Day, Intel's served addressable market in networking during 2015 was $18 billion. Per the company's most recent investor meeting, the company expects to capture approximately 9.5% share of that served addressable market this year and hopes to continue to outgrow the market (i.e., gain share) in the years ahead.
Even for the world's largest semiconductor company, an $18 billion served addressable market is quite large (and it's likely growing); material share gains here should lead to very nice growth in the company's top and bottom lines in the year ahead.
What does this have to do with mobile devices?
If this discussion has seemed focused on Intel's data center business thus far, it's because it has been. This is business that Intel expects to be its main growth engine in the years ahead and the company has been very clear that it's going to invest even more aggressively here in the years ahead.
With this background in place, I can finally explain why Krzanich feels the need for Intel to stay in the mobile market.
According to Krzanich, the company is finding from its discussions with service providers, wireless carriers, and telecom equipment manufacturers (the folks Intel's data center group wants to sell chips to), having cellular modem capabilities is critical to winning share in the networking chip market.
"You have to be on both ends of this network in order to be considered relevant," Krzanich asserted.
Intel still aims to be profitable in mobile
During the question-and-answer session, Krzanich made it clear he doesn't want to "lose money" in the mobile chip market has it has been for many years (and will likely continue to do for years to come). However, he did indicate that even if this business is never profitable for the company, operating it at around break-even levels would still be good enough given the positive implications for its networking chip business.
"So I look at it as yes, I need to get as good as I can get in the tablet and phone space," Krzanich said. However, he made it clear that building capable modems -- at least now -- is more about "funding access" to growth markets for Intel's networking and Internet of Things businesses.