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After losing Apple's iPad business, Intel has bled $7 billion while heavily subsidizing cheap x86 Atom Android tablets

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After losing Apple's iPad business, Intel has bled $7 billion while
heavily subsidizing cheap x86 Atom Android tablets

November 16, 2014

Over the last two years, Intel's mobile chip division has lost $7
billion while heavily subsidizing the manufacturing costs of Android
Atom tablet makers. It now plans to phase out those generous incentives,
which will make it more expensive for iPad competitors to dump cheap
tablets into the market.

Apple has been selling tens of millions of iPads in competition with a
series of loss leader giveaways from Samsung and regular fire sales of
flop tablets, including the HP TouchPad, BlackBerry PlayBook, Motorola
Xoom, Dell Streak, Microsoft Surface, Cisco Cius, HTC Flyer, Google
Nexus and Amazon Kindle Fire.

At the same time, Intel has been spending billions to flood the market
with cheap Android tablets using its Atom processor. All of this
subsidized, clearance sale product dumping makes it quite incredible
that Apple can sell any iPads at all, let alone remain the world's
leading tablet vendor.This subsidized, clearance sale product dumping
makes it quite incredible that Apple can sell any iPads at all, let
alone remain the world's leading tablet vendor


ARM and a lag


Over the past four years, Intel has been paying netbook and tablet
manufacturers to switch from ARM Application Processors to its own
chipsets centered around its x86 mobile Atom processor.

These payments include co-marketing, extreme discounts on Atom chips,
and payments to cover the costs of redesigning logic boards to
accommodate Intel's Atom rather than ARM chips from companies including
Nvidia and Qualcomm.

In February, Bernstein Research analyst Stacy Rasgon noted that Intel's
subsidies, which the company refers to as "contra-revenues," amounted to
about $51 per tablet, "which on the surface seems absurd," particularly
because those Android "tablets are increasingly cheap models, mostly
sub-$199," according to a report on Rasgon's note by Barrons.

Rasgon wrote, "Our analysis suggests that Intel will likely not be
selling tablet chips in 2014 for much above costs, with gross margins
approaching zero, even before adding rebates into the mix." She
calculated that Intel's rebates to manufacturers in 2014 amounted to
around $2 billion.

Intel reported mobile chip losses of $3 billion in 2013. Those losses
increased this year; Morgan Stanley analyst Joseph Moore recently
estimated that Intel's Mobile and Communications Group will lose $4
billion in 2014. That's an astounding $7 billion lost across two years,
three years after Intel announced its partnership with Google to support
Android.

"While we do expect that [Intel] phasing out tablet subsidies over the
course of 2015 will cause modest reduction in losses, it could also
blunt the company's momentum in tablets significantly," Moore wrote.
"Eliminating these losses would require either massive revenue gains, or
massive expense cuts, and we don't see a clear scenario for either of
them."


Intel nostalgic for its x86 PC monopoly


While Intel is clearly trying to prop up its crumbling x86 1990-era
WinTel empire, its current high subsidies are also an acknowledgment of
Apple's increasing power. Apple's ability to sell high volumes of
high-end products has given it the leverage to demand favorable prices
and terms from its suppliers, including Intel.

Intel's massive Atom subsidies to other PC makers make it clear that the
chip maker would prefer a return to the WinTel era, where it sold
expensive chips to a wide variety of manufacturers who lacked any
differentiation or price negotiation power, and where its proprietary
chip design couldn't be easily copied.

Intel's co-rule with Microsoft effectively forced virtually every PC
maker to adopt Intel chips and Windows software (with the notable
exception of Apple) at whatever price the WinTel monopoly decided to
charge.

Intel welcomed Apple's Macintosh to the world of x86 chips in 2006, but
by 2010 the chip maker had created an UltraBook Fund aimed at getting PC
manufacturers to produce machines that looked like MacBook Air clones.
Intel also floated a copycat Mac mini design.

Intel's backstabbing style of partnership with Apple appears to have
pushed the Mac maker toward investing in its own custom processors for
iOS devices. Apple's hardware profits have since financed the
development of new chip technology that is not only better than Intel's
mobile Atom, but now threatening to rival the chip giant's mainstream
desktop processors.

Apple's iPad busted the WinTel trust


Around 2008, Intel expected Apple to adopt its mobile x86 Silverthorne
chips (later rebranded as Atom) for its new iOS tablet. However, when
the iPad appeared in 2010, Apple instead used its own A4, a customized
ARM chip that was also used to power iPhone 4 later that year.

At the beginning of 2011, Microsoft also snubbed Intel by showing off
what would later be named Windows RT, a project to get Windows working
on ARM chips—including the Qualcomm Snapdragon, TI OMAP and Nvidia Tegra
chip families—in order to keep low end Windows PCs, netbooks, tablets
and hybrid 2-in-1 devices competitive with Apple's increasingly popular
iPad. Intel's Atom chips were clearly unable to match the A4 iPad's
battery life.

Jilted by Microsoft, Intel subsequently rushed to support Google's
Android 3.0 Honeycomb also in competition with iPad, offering makers fat
subsidies for building Android tablets using Intel Atom chips.


Reversal of fortunes for WinTel


Working separately, Intel and Microsoft both failed spectacularly. Over
the past two years, iPad sales have remained an empire, selling 70
million units per year. Windows RT ended up an unmitigated disaster.

Microsoft spent two years delivering Windows RT, then failed to support
existing Windows software on ARM products like its own Tegra-powered
Surface RT. When Apple moved Macs to PowerPC in 1994 and then Intel
chips in 2006, it did the extra work required to support existing Mac
applications on its new hardware, setting the expectation that Windows
RT would, too.

Microsoft apparently thought that Windows was a valuable brand that
people would go out of their way to buy even if it didn't work in the
minimally utilitarian fashion that people expect from products bearing a
Windows logo.Microsoft apparently thought that Windows was a valuable
brand that people would go out of their way to buy even if it didn't
work in the minimally utilitarian fashion that people expect from
products bearing a Windows logo

Intel's Android partnership resulted in the Atom-powered 2012 Motorola
RAZR i phone, which Android fans hailed as a new savior until it
mysteriously disappeared. While failing to find interest among phone
makers, Intel has pushed hard to force Atom into Android tablets, at
great expense.

Intel's Atom chips are approaching shipments of 40 million this year,
after reaching 10 million in 2013. However, Atom shipment growth has
come directly from Intel's liberal subsidies; shipments are expected to
collapse as soon as Intel stops paying subsidies, as it plans to do next
year.

Intel CEO Brian Krzanich "is laser focused on [reaching] 40 million
tablets," Intel's chief financial officer Stacy Smith stated during a
conference call with analysts in April, as reported by CNET.


Intel buying Atom tablet market share


Krzanich said 80-90 percent of tablets Intel was subsidizing were
Android, the rest ran Windows. "The majority is in $125 to $250 range,"
he detailed.

Intel's mobile Atom chips are cheaper and less profitable than its
conventional x86 desktop-bound processors, so much of the expensive
progress in selling Atom-based netbooks and tablets has come out of the
flesh of Intel's more lucrative PCs shipments, a sort of "friendly fire"
casualty stemming from its war on iPad.

Rather than continuing to spend billions on Atom subsidies, Intel now
plans to license its x86 Atom, 3G and LTE baseband IP to Chinese fabless
chip designers including Rockchip, Spreadtrum and RDA Microelectronics,
following a licensing model similar to ARM or Qualcomm.

Those partnerships expect to launch new "SoFIA" chips by the middle of
next year, which Intel hopes it won't have to continue to subsidize.
However, that move will also result in Intel collecting far smaller IP
royalty payments while its new chip design partners earn most of the
money in selling finished chips to tablet manufacturers.


Intel's Atom bombs the benchmarks


It's also not clear why Intel seems to think Atom is competitive with
ARM. "We don't take any competition lightly, but we're confident that
our Intel Atom (Bay Trail) processors will continue to be the
performance and performance per watt leader," an Intel spokesman was
cited as saying in a report by EETimes.

However, Intel's Bay Trail Atom Z3745 used in Lenovo's Yoga Tablet 2 Pro
(a top scoring Android tablet) delivers CPU benchmarks closer to a two
year old iPad 4, while its "Intel HD" graphics deliver the worst GPU
benchmarks of any recent tablet we tested, and about one quarter the
scores of iPad Air 2.

Intel apparently thinks that Intel is a valuable brand that people will
go out of their way to buy even if it doesn't work in the minimally
utilitarian fashion that people expect from products bearing a Intel
logo.

http://appleinsider.com/articles/14/11/16/after-losing-apples-ipad-business-intel-has-bled-7-billion-while-heavily-subsidizing-cheap-x86-atom-android-tablets

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After losing Apple's iPad business, Intel has bled $7 billion while  heavily subsidizing cheap x86 Atom Android tablets Intel Guy <"Intel"@Guy . com> - 2014-11-16 17:31 -0500
  Re: After losing Apple's iPad business, Intel has bled $7 billion while heavily subsidizing cheap x86 Atom Android tablets Yousuf Khan <bbbl67@spammenot.yahoo.com> - 2014-11-21 03:26 -0500

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