Intel CEO reaches for the TV-off button to focus on more important issues

Summary:Intel's lack of a high volume mobile chip could lead to unexpected alliances...

Intel's [$INTC] plans to offer a streaming TV service by the end of this year is on the ropes and its prospects have greatly diminished under new CEO Brian Krzanich.

Peter Kafka reporting on AllThingsD:Intel Wants Helps from Amazon or Samsung to Launch OnCue Web TV - Peter Kafka - Media - AllThingsD

People familiar with Intel’s plans said the company has been talking to both Amazon and Samsung in the hope of keeping the service afloat.

Foremski's Take: The streaming TV service was announced in early 2013 and is a project backed by former CEO Paul Otellini, who left the chipmaker in May.

The Intel TV venture has about 300 staff and there is a small pilot project being tested by several thousand Intel employees.

But this TV project never made any strategic sense especially since Intel has much larger challenges on its plate related to its main business of chip manufacture.

When Mr. Krzanich became CEO in May, his first interviews signaled that the TV project would not be a priority. He has now told the team that they must find partners or it will be shutdown. It's highly unlikely that Intel will get the media partners it needs to keep it going.  

Building a foundry business…

Intel's current priorities are how to build a foundry business making custom chips for clients. This is a tough business for Intel because it's always built only its own chip designs, except for a brief period when it built ARM based chips. It has tried to build a foundry business once before and abandoned it.

Another challenge facing Intel is its move to advanced chip fabs. Its chip manufacturing expertise is the world's best, and it is way ahead of rivals by a year or more.

However, it is missing something tremendously important that is absolutely needed if it is to keep ahead of rivals with the best, most advanced chip fabs. It needs a high volume, cutting-edge mobile chip to make so that it can quickly ramp up its future fabs.

Intel is not a microprocessor company…

The key to understanding Intel is understanding that it is a chip manufacturer first — it just happens to make microprocessors because they are highly profitable.

In order for it to build advanced chip fabs it needs to manufacture a chip that it can use to calibrate and fine-tune more than 300 separate manufacturing steps. Without that, its production yields will be low, and it'll take much longer to ramp up production of other chips.

With the latest fabs costing more than $9 billion, it risks massive losses if it can't put that all of that capital to work as quickly as possible. 

Why Intel needs mobile chips…

Because of the smaller markets for desktop PCs and laptops, and its failure to dominate in mobile chip markets, Intel lacks a high volume cutting edge chip to help it ramp its advanced fabs.

If it had, for example, the manufacturing contract for Apple's latest A7 iPhone chip, it would be an ideal chip for driving its advanced chip lines. However, Intel's rival Samsung has that contract. 

Former Intel CEO Paul Otellini recently said that one of his regrets was not taking the iPhone seriously when Intel had a chance to make chips for Apple. He didn't think there would be much demand and so he quoted Apple a price higher than it wanted to pay, and chip foundry TSMC won the contract. 

The iPhone became the world's biggest selling consumer digital device. Apple's revenues from its iPhone business over the past four quarters were $88.4 billion. Intel's 2012 revenues were $52.3 billion. 

Maybe the new CEO can woo Qualcomm, the top fabless chip company, as a foundry customer? It has exactly the high volume, cutting edge mobile chip designs that Intel needs.

But overcoming Intel's incredibly strong culture of competitiveness with Qualcomm, and to using the British ARM microprocessor design that's the basis of Qualcomm's designs —  would be massive cultural challenges.

The last thing Intel's CEO needs right now is figuring out how to offer a commercial streaming TV service.

Topics: Intel

About

In May 2004, Tom Foremski became the first journalist to leave a major newspaper, the Financial Times, to make a living as a full-time journalist blogger. He writes the popular news blog Silicon Valley Watcher--reporting on the business of Silicon Valley.Tom arrived in San Francisco in 1984, and has covered US technology markets for leadi... Full Bio

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