New Intel CEO: Stay Tuned for Much Cheaper Portable PCs

July 17, 2013, 9:10 PM

New Intel CEO: Stay Tuned for Much Cheaper Portable PCs

By Don Clark

Why does new Intel INTC -0.41% CEO Brian Krzanich sound so upbeat amid the personal computer market’s contraction? His first earnings call Wednesday supplied some clues, including a bet on the impact of much lower PC prices. The chip giant’s profits fell 29% in the second period, and Intel predicted its revenue will be flat for all of 2013, down from a prior prediction of growth “in the low single digits.” But Krzanich is betting that some new chips–particularly those stemming from an overhaul of its low-end Atom line–will have a big impact on demand later this year and into 2014.Historically, Intel showed a tendency to emphasize its flagship Core line of chips, which can sell for hundreds of dollars. Atom chips, by contrast, sell for tens of dollars.

Krzanich has vowed to change that bias, through steps such as shifting Atoms production to new Intel manufacturing processes once reserved for Core chips.

A key part of his strategy is based on a forthcoming Atom model that is code-named Bay Trail. The company expects the chip to offer performance approaching that of mainstream PCs but at much lower prices.

Results, Krzanich said, will include clamshell-style laptops with touchscreens–which are now pretty rare at less than $500–that will be priced at $300 or lower.

“PCs, especially with Bay Trail, are going to move down to $200 to $400 range,” Krzanich said.

And devices that function in both clamshell and tablet style, which are even more expensive now, will fall to the $400 range, he said.

Intel also expects Bay Trail to be used in tablets priced at $199 or even below $150, he added. Getting Intel technology into those kinds of prices points opens up major opportunities to drive large volumes of chip sales, Krzanich said.

The Intel call touched on many other topics, including:

–Capital spending. Intel came into 2013 expecting to spend a whopping $13 billion on factories and equipment to make chips, a commitment not popular on Wall Street amid gloomy prospects for PC sales.

About $2 billion of its spending was earmarked for early investments to get ready for a major change in production technology, shifting to 450-millimeter silicon wafers rather than the 300-millimeter variety to reduce costs of producing each chip.

After the first quarter, Intel lopped $1 billion off that estimate, and on Wednesday it cut another $1 billion, reducing Intel’s spending projection for the year to $11 billion.

Stacy Smith, Intel’s chief financial officer, said only a small amount of the savings is associated with spending related to the new wafers. Generally, he said, Intel is just able at current unit sales expectations to spend less on new equipment than it had planned, he said.

With demand relatively low now, are Intel’s factories running fairly empty? Not at all, Smith said.

“We are running healthy levels of utilization in the second quarter, and expect to run the factories healthy in the back half of 2013,” he said in an interview.

–Unit chip sales. At first blush, Intel’s estimate that unit chip sales in its PC client group declined just 5% from the year-earlier quarter seems a bit puzzling–at least when you compare it to Gartner and IDC statements last week that second-quarter PC sales fell about 11% in the second quarter.

But Smith said there are some key differences in what is counted.

IDC and Gartner factor in falling shipments of the low-end PCs called netbooks, which caused a big bulge in sales volume several years ago but fell off dramatically after tablets arrived with the iPad in 2010. Intel, however, no longer puts sales of netbook chips in its PC client group.

Instead, the company includes netbook chips sales in a group called “other Intel architecture,” which also includes businesses such as still-nascent sales of chips for smartphones. Revenue for that segment was off 15% in the second quarter, and it posted an operating loss of $608 million.

The PC client group also includes some products that IDC and Gartner do not–including chips for Microsoft MSFT -1.46%’s Surface Pro tablets, Smith said.

When you consider such factors, Intel’s view of the PC market is pretty close to that of the two research firms, he said.