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Tim Green

Intel Restructures for the Post-PC World

by Tim Green | Dun & Bradstreet Editor

April 20, 2016 | No Comments »

It’s not quite the same as the decision of Robert Noyce and Gordon Moore to get Intel out of the memory chip business in the early 1980s, but Tuesday’s announcement that the company would drastically de-emphasize chips for personal computers is close.

Intel’s CEO Brian Krzanich told employees Tuesday that it would cut 12,000 jobs, most related to making chips for PCs, and focus investment on developing and selling chips for growing markets of data center and Internet of Things applications. Those areas provided 40% of Intel’s revenue in 2015 and most of its operating profit.

Some 40 years ago, Intel lost ground to Japanese chip makers who cranked out memory chips at lower prices. Intel’s leaders Noyce and Moore waved goodbye to memories and dove into making the more complex integrated circuits that would power PCs for the next four decades.

Their timing couldn’t have been better with the era of the PC just starting. Intel’s chips and Microsoft’s operating system have dominated the PC market. The Wintel combination helped companies like IBM, Dell, Hewlett-Packard, Compaq, and a slew of others to nearly reach Bill Gates’ goal to put a PC on every desk.

But today none of those companies depends on PCs. IBM sold its PC business to Lenovo. Dell is building a giant services company with its pending acquisition of EMC. HP, which bought Compaq some 15 years ago, split itself into two companies, one focused on enterprise computing and one that sells PCs and printers.

And when mobile devices became the next big thing, Intel didn’t react quickly enough as Qualcomm and Samsung took large shares of the market. Now Intel is moving to catch the next technology wave.

Intel said that the data center and Internet of Things (IoT) businesses are now driving its growth, particularly with memory (Hey, they made a comeback!) and field programmable gate arrays (FPGAs).

The company intends to increase investments in its data center, IoT, memory, and connectivity businesses, and in other segments combination tablet-PCs (called 2-in-1s), gaming, and home gateways for Internet access.

“This restructuring program will allow us to expand our investments in the data center, the Internet of Things, memory, and connectivity, even as we reduce our spending run rate by roughly $1.4 billion by mid-2017,” Krzanich said during a conference call with investors.

In 2015 Intel’s $55.3 billion in revenue was flat from 2014, but the IoT and data center businesses added $2.2 billion in revenue and cushioned the stagnation in the PC market. The contribution of the PC-related business to Intel’s revenue has shrunk from 66% in 2013, to 62% in 2014, to 58% in 2015.

Intel wants to use its resources — engineering expertise, chip fabrication plants, and marketing might — to carve out a big chunk of the multitrillion-dollar market for IoT devices in the next decade that forecasters are predicting.

The data center market too is growing. The information collected from the IoT has to be analyzed somewhere, and it will be in data centers. And data centers are ground zero for the burgeoning market of cloud computing applications.

Intel’s 2015 $16.7 billion acquisition of Altera, which was a leading developer of FPGAs, is a key part of the transition. The FPGAs can be reprogrammed while in use, which allows greater flexibility in programming servers in data centers. The company has started shipping Xeon processors that are paired with FPGA chips for customers to test for use in data centers.

The switch that Intel announced this week is not a surprise. The company has been leading up to it with acquisitions and investments for several years. And it follows company tradition to respond to what former Intel CEO Andy Grove, who died last week, called inflection points by betting on the new rather than sticking with the old.

One thing Intel can keep is its “Intel Inside” tagline with a slight addition for the Internet of Things market: “Intel Inside Everything.”

Tim Green has covered business, technology and science at newspapers and in higher education. At Hoover’s he covers computers and telecommunications. Follow him on Twitter.

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Photo courtesy of Intel, used here under a Creative Commons license.

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