$4.2 billion gone in 2014

Intel keeps throwing billions down the drain at tablets, phones

Despite the fact that it recorded net income of $11.7 billion in 2014 on $55.9 billion in revenue, Intel still isn’t reaping financial benefits from the mobile revolution. In fact, just the opposite is happening.

Yes, [company]Intel[/company] met its goal to have its chips in 40 million tablets last year, for example — it actually powered 46 million, according to the company — but it didn’t make any money on them. Purely from a financial perspective, Intel might be better off ignoring tablets and smartphones: The company’s mobile division posted a $4.2 billion operating loss in 2014.

ASUS ZenFone 2 color line up 2

That’s worse than the $3.1 billion operating loss by the same division a year earlier, so all of the mobile device wins are in some respects, big losers.

Here’s a chart showing the quarterly operating losses for Intel’s Mobile and Communications group, which is responsible for “Delivering platforms designed for the tablet and smartphone market segments; and mobile communications components such as baseband processors, radio frequency transceivers, Wi-Fi, Bluetooth*, global navigation satellite systems, and power
management chips.”

Why the big — and getting bigger — losses for the Mobile and Communications group? Several reasons but likely the biggest one is this, which I’ve emphasized, from the company’s 10-Q statement in the third quarter of 2014 (Note: Intel hasn’t filed a 10-Q for the most recent quarter yet):

“This decrease was primarily due to higher cash consideration to our customers associated with integrating our tablet and phone platforms. Additionally, lower MCG phone components unit sales contributed to the decrease. These decreases were partially offset by higher tablet platform unit sales.”

Cash consideration in this case generally means subsidies to device makers to choose Intel chips over the competition, which Intel noted earlier this year. Reports indicate that the subsidies will slow or even cease in 2015, but we’ll see.

It’s great the Intel is getting mobile device wins; it keeps the company in the conversation when discussing tablets and phones. Indeed, Asus launched new Android-powered ZenPhones earlier this month with Intel Atom chips. Several new [company]Microsoft[/company] Windows tablets introduced at the Consumer Electronics Show have Intel inside as expected too.

Very few [company]Google[/company] Android tablets do, however, and of course Apple’s iPad runs on a custom-designed ARM chip. So Intel is still on the outside looking in when it comes to mobile. And it’s getting very costly to keep fighting that battle.

8 Responses to “Intel keeps throwing billions down the drain at tablets, phones”

  1. Al Dutcher

    They had to develop processors with better bang / watt
    to compete with arm or become irrelevant.
    I think theyve done well in the chrome book area.
    That helps offset losses in phones and tabs.

  2. “Cash consideration in this case generally means subsidies to device makers to choose Intel chips over the competition”

    How is this legal? Isn’t this like bribing device makers to choose their chips?

    • No, this is very common in numerous industries. The most common form is co-op advertising. When a product like the latest Madden is given prominent endcap display space, you can bet EA ponied up some cash to make that happen. Another tactic is spiffs, rewards to sales personnel for moving a particular company’s product. Back when I worked in computer stores in the early 80s, my net income was frequently entirely derived from spiffs.

    • PRETHOUGHT

      Here is the problem. Intel has always built for cpu power without considering energy efficiency. Hence a fully populated Dell M1000e chassis with Ivy Bridge requires (3) phase (3) 208v 30amp power. Also the same reason Google and Facebook builds their own servers on ARM.

      The Baytrail proc they definitely subsidized but they are only going mostly into garbage Windows Tablets that work very poorly. So unless Cherrytrail is a quantum leap in power and energy efficiency they will lose more money still. Broadcom, Nvidia, Qualcomm, Apple have nothing to worry about. At least not yet.

      It’s quite funny how Intel’s M&A binges in the 90’s were just to kill the competition and not acquire tech. They did own StrongARM and just closed the doors on it.

      Here’s a thought Intel dump Windows and go Big Endian and buy someone elses ARM tech but don’t turf it, learn form it.

      Intel will always lose money because they try to spread themselves too thinly because they are always trying to quell some minor threat.

      Like they say only the paranoid survive.

      • I don’t know where to start with this nonsense. Google and Facebook don’t build their own servers on ARM (they may research it, but Intel’s server growth certainly suggests contrary), BayTrail tablets work great from what I’ve seen, and StrongARM was sold (not killed). Finally, how can you say “Intel will always lose money. . .” when the same article points out they had a net income of $11.7B. You are ridiculously uninformed.

    • Yes and no. Bribing is only illegal in government as it is not their money they are using and thus they may not benefit personally from a deal as this will lead to them choosing a worse deal that only benefits them and not the country. In the same way company representatives may not benefit personally but if the deal is beneficial to the company then it is good business. Additionally your bank bribes people to open new account with promotions and your cell phone company bribes people to open a new account with phones and promotions. At the end of the day they are just a company trying to increase their client base.

      America has been running its arms deals like this for years, keeping France South Africa and Israel away from sales by sometimes running at a loss. This pays off in the long run.