Is Intel's x86 playbook played out?

The underlying theory that drives Intel is this: As long as the company keeps making great x86 processors things will be fine. Analysts are beginning to question that logic.
Written by Larry Dignan, Contributor

The Intel Developer Forum wrapped up this week and the themes sounded familiar: Create better processors and ecosystem, drive devices across all screen sizes and leverage a manufacturing edge.

Intel's taglines---transparent computing for instance---may change, but the underlying theory that drives the chip giant is this: As long as the company keeps making great x86 processors things will be fine.

However, analysts are starting to question Intel's x86 long architecture love affair. These analysts argue that Intel needs a new direction to focus on the post-PC era. New processors won't drive PC or ultrabook sales because people are buying tablets and smartphones, these analysts argue.

The week in IDF: Intel brings voice search to ultrabooks | Intel wants to redefine mobile personal computing via voice, gesture functionality | Haswell: Intel's key for unlocking the post-PC world | Intel SVP: Yes, HTML5 is over-hyped but it will move mobile forward | Intel: We know how to make 10nm chips | Intel ports Android Jelly Bean to x86 phones, but no rollout date set | Intel: Non-volatile memory shift means chips need an overhaul | Inside IDF: Intel shows you the future (photos)

Are the naysayers right? It's unclear, but the argument is worth noting. If the naysayers have Intel pegged, the company is doubling down on reinventing the PC market just as it should be harvesting a mature business and going hog-wild on mobile. Intel's data center strategy can last for a while given that its processors power the cloud---even though ARM-based microservers could be a threat.

Piper Jaffray analyst Auguste Gus Richard outlines the case that Intel is making a wrong turn at a key inflection point. He said:

The Intel Developer Forum was held this week. There was little offered that would change our outlook for the stock. In a post-PC era, we believe CPU performance matters less and the ecosystem and differentiation matter more than ever. It appears, however, the company continues to believe things will be fine if they just build a better CPU. We believe the need for Intel to shift its business model has become obvious. What should Intel do? We would suggest: it improve its system on a chip design methodology, perhaps make an acquisition that allows them to provide OEMs with IP and EDA tools, license ARM and harvest the PC business as it enters a state of decline. At this point, we see Intel as doubling down on improved versions of x86 CPUs, which we continue to believe is the wrong direction.

Richard also called Intel's Haswell chip, which is the successor to Ivy Bridge, a has been. Sure, 10W thermal design points are nice, but the last two Intel processors failed to boost PC demand. Why would Haswell, unveiled at IDF, boost PC demand. Tablets and smartphones made by Apple and Samsung have their own processors. Even Microsoft has an ARM tablet.


In addition, Richard argued that Intel should become a foundry for the industry. After all, Intel's manufacturing prowess can't be replicated easily. Intel could get returns on its manufacturing investment by manufacturing chips for Apple. That talk is heresy at Intel. Meanwhile, licensing ARM is probably heresy too.

Judging from Intel's IDF powwow this week, it's fairly clear that the chip maker isn't exactly consulting Richard on strategy. Intel's David Perlmutter, executive vice president, unveiled Haswell:

I'm extremely proud to show to you and expose to you the next generation of Intel core technology, code name Haswell, which is going to be coming to the world next year. It's based on our 22 nanometer. But the great thing about this one, it was designed with mobility in mind. This is very much to span across the power performance scale anywhere from a sleek tablet to an Ultrabook to eventually a high performing desktop and work station. We have taken the architecture extremely seriously, so we've been able to cut 20x of the item power off the platform level, not just the CPU level, comparing to a Sandy Bridge, which is the second generation core technology.

Will technology buyers care though?

It's possible that tech buyers will care about Haswell---only because the initial Windows 8 systems may be buggy. JMP Securities analyst Alex Gauna noted:

Intel didn't do itself any favors in terms of investor sentiment by trotting out and showcasing Windows 8 systems that clearly were not ready for prime time. Intel is no stranger to demos that go awry, but the main keynote this year struck us as particularly unfortunate and likely to only intensify investor concerns that Intel does not have an answer to the ARM-based computing threat.

Given Intel's sales warning for the third quarter, macroeconomic concerns and ongoing worries about Windows 8 demand, it's not surprising that the company's steady-as-she-goes cadence of new processors is worrying analysts.

Wedbush analyst Betsy Van Hees said in a research note:

While Intel had an impressive lineup of Ultrabooks featured at IDF, we are concerned following industry checks that inventory builds for Ultrabook builds have already taken place with OEMs/ODMs looking for sell through before placing re-orders. Industry checks indicate PC OEMs/ODMs are looking for flat to down 2 to 3% Y/Y growth for PCs suggesting that we could see another quarter of inventory burn in Q4 for MPUs.

That pause in processor sales will hurt Intel in the key holiday shopping season. Given that reality it's no surprise that Intel's naysayer bandwagon is filling up.

Intel CTO Justin Rattner obviously doesn't buy the naysayer argument. His IDF parting shot:

It used to be we'd come out and all we'd talk about was the silicon. As we moved along we talked more and more about platforms and I think today, yesterday and the day before you've come to appreciate the focus we have on creating great experiences across the entire compute continuum. I'm sure we'll enjoy the ride into the future together.

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