Intel Corp. (INTC) Chief Executive Officer Brian Krzanich took the stage at the International Consumer Electronics Show with the message that the chipmaker is taking steps to remain relevant as consumers switch to mobile devices for computing tasks.
Krzanich, who made a keynote presentation at the 150,000-attendee trade show in Las Vegas, demonstrated a new personal assistant software package for phones that is controlled via an earpiece and microphone. He also showed off a new processor, called Edison, which plugs into a memory-card slot in portable devices, and a bowl that can wirelessly charge handheld electronics.
The world’s largest chipmaker, which dominates the market for semiconductors that run traditional computers, is seeking to branch out as consumers increasingly use smartphones and tablets that don’t contain Intel processors. With the personal-computer market forecast to decline for a third consecutive year and Intel failing to win significant market share in phones, Krzanich is working to ensure that the company doesn’t miss new opportunities such as wearable devices and other personal technology.
“PCs are slowing so you have to offset that with something else,” said Patrick Wang, an analyst at Evercore Partners in New York, who has the equivalent of a sell rating on Intel shares. “The biggest challenge is it takes a lot to move the needle at Intel.”
The devices being shown off by Krzanich resulted from work done in the past six months by Intel’s New Devices division, led by former Apple Inc. executive Mike Bell. While none of the products will be brought to market directly by Intel, the company is working with potential customers for the gadgets to go on sale this year, Bell said in an interview.
Unlike current efforts to produce wearable devices such as smartwatches, Intel is aiming to solve real-life problems, Bell said. Another product being demonstrated is a set of headphones that also act as a heart monitor for health and fitness uses.
“We think there’s a really good business in this,” Bell said. “The market is wide open, nobody has leadership yet.”
The Santa Clara, California-based company, which Krzanich took over in May, remains heavily dependent on servers and PCs. Intel has more than 80 percent of the market for PC processors and more than 95 percent share in server chips, according to researcher IDC. In November, the company said sales in 2014 will be about the same as the $52.6 billion it is forecast to report in 2013.
“We asked ourselves why aren’t wearables everywhere? What’s holding back these devices?” Krzanich said at CES yesterday. “The answer is you’re not solving real problems. Wearables need to do that.”
Since becoming CEO, Krzanich, a former semiconductor factory manager, has taken steps to diversify Intel’s business. He has said Intel will focus on providing what the market wants in chips rather than following the company’s traditional method of designing and selling products aimed at determining the direction of technology. In addition, the company’s plants, which Intel says are the industry’s most advanced, may produce chips for rivals, he said in November.
“However the market moves, wherever the compute need is, we want our products to do it best,” Krzanich told analysts and investors at a meeting at the company’s headquarters that month. “We’d become insular. We’d become focused on what was our best product rather than where the market was moving.”
The 53-year-old also has said he’s speeding up the time it takes from design to production of new chips and concentrating efforts on lower-power products. Intel has a new processor called Quark, which it’s trying to get into everything from household appliances to industrial equipment.
Krzanich’s openness to producing chips for other companies and to listening to what his customers want is a departure from predecessor Paul Otellini, who had said smartphones and tablets wouldn’t be used as PC replacements, according to Stacy Rasgon, an analyst at Sanford C. Bernstein & Co.
“They had their head in the sand,” said Rasgon, who has the equivalent of a sell rating on Intel shares. “Their push now is to make sure they don’t get blindsided again.”
The CEO, who like his five predecessors was an internal appointment, may need to go further to make what Intel produces central again. While wearable devices could become the next billion-unit market, according to Rasgon, Intel isn’t fast enough at rolling out new products, he said.
Intel shares, which gained 26 percent in 2013, fell 1.2 percent to $25.46 at the close in New York yesterday.
Evercore’s Wang said Intel’s factories might be its best bet for getting into new markets. The company will spend $11 billion this year on plants and equipment to maintain its lead in transistor technology. Intel said it is more than a year ahead of competitors in the manufacturing of the fundamental component of all semiconductors.
To participate in the market for smartwatches, glasses and the so-called Internet of things, where Intel has no track record in designing chips that are any better than alternatives, the company should open its factories to rivals such as Qualcomm Inc. (QCOM), which are more likely to win, said Wang.
That’s a step further than Krzanich may be ready to take and would require the shutdown of some of Intel’s own efforts to get into smartphones and tablets because there’s no point in empowering a competitor to undermine your own research and design efforts, he said.
Any wins with new products for wearables or similar devices won’t have an immediate impact, according to Rasgon.
“It’s not going to be anything meaningful in 2014,” he said.
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