Intel's toughest year starts now

2014 is a do-or-die year for CEO Brian Krzanich as his company struggles to finally succeed in the mobile market

How tough is the outlook for Intel? So tough that an essentially mediocre quarter was saved by what's likely a temporary slowing in the rapid decline of consumer PC sales -- and by stealing a bit of market share from rival Advanced Micro Devices. So tough that it's practically giving away mobile chips, a margin-busting strategy detested by many investors. And so tough it's betting it can increase its sales of tablet chips by 400 percent in a market that has so far eluded it.

That's not to say that Intel won't succeed. Betting against the giant chipmaker is often a very bad wager. But it is increasingly clear that "2014 is a pivotal year for the company and CEO Brian Krzanich," says Dean McCarron, a principal analyst at Mercury Research.

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What makes Krzanich's job so daunting is that his company has to execute on so many fronts at the same time.

"Even if the PC market recovers slightly, which I believe it will, Intel will need to juggle many balls, including [Internet of things], mobility, and defending the data center, all while moving everything over to 14-nanometer manufacturing process. These are the most balls I've ever seen them have in the air at once, so 2014 isn't a slam-dunk," Patrick Moorhead, analyst at Moor Insights & Strategy, told VentureBeat.

Intel's strategy: Something old, something new
Intel's strategy reminds me of the aphorism about what a bride needs to wear: something old, something new, something borrowed, something blue. Forget the blue part, but add "someone fired."

What's old? Its strategy of buying market share by slashing prices. Intel will never say that it's doing that -- but it is. During its quarterly earnings call last week, Krzanich discussed what he calls "contra revenue." (You can read a transcript of the call.)

That odd term essentially means that Intel will pay tablet makers to cover the additional component costs of using its Bay Trail chips instead of ARM-based processors, and it will help cover the engineering costs of designing an Intel-based tablet. "The majority of projects we have in 2014 use some level of contra revenue," Kraznich said. It's necessary because Bay Trail was designed for the high end of the tablet market, while most of the action is moving toward the low end.

Bay Trail is more expensive than the ARM chips that dominate the market. That's because device makers need to buy additional components for functions like communications, or print additional layers onto Bay Trail circuit board, to do what an ARM chip does alone.

In years past, Intel would give price breaks to PC makers as a way to discourage them from buying chips from other chipmakers. The strategy was controversial, leading to a lot of heated accusations and (ultimately fruitless) government investigations. But that won't happen this time, says Nathan Brookwood, a principal analyst at Insight 64. "They have no almost no presence in the tablet market. The FTC (Federal Trade Commission) isn't about to accuse them of monopolistic practices."

What's new? Two platforms called Broxton and SoFIA. Both are highly integrated SOCs, or systems on a chip, that combine processing and communications (Wi-Fi and cellular). Such integration will bring costs down quite a bit, and hopefully (from Intel's point of view) end the need for subsidies. SoFIA, targeted at smartphones, will be released late this year; Broxton, a fast, power-efficient tablet chip, is promised to ship in 2015.

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