Intel's new CEO must get inside next-gen devices

With Brian Krzanich and his manufacturing prowess at the helm of Chipzilla, expect it to keep trying to out-engineer the competition

Let's do the boring stuff first: Intel has found its new head honcho in current chief operating officer Brian Krzanich (pronounced Krah-ZAN-itch), who will take over the CEO reins when Paul Otellini steps down at the annual stockholder's meeting on May 16.

Normally, we don't cover executive shake-ups at tech companies because the details of who is wearing what suit don't matter much to everyday users. Who cares who the head of MegaCorp 5 is?

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It's different when it's Intel.

Intel is one of the bedrock businesses supporting the Wintel ecosystem. And shake-ups there can easily lead to aftershocks that affect the entire PC industry -- which is already in a somewhat precarious position, shaken by the rise of tablets, the wobbling of Moore's Law, and the transformation of PCs into microwaves. Into this landscape of ominous seismic activity walks Krzanich.

So Intel has a new CEO. Now what?

Don't rock the boat, baby

The mere fact that the engineering-focused Krzanich, rather than a senior executive from a nontechnical division such as marketing or software, was anointed the new leader speaks volumes about Intel's plans.

"Regardless of the CEO, the same challenges exist for Intel," says Patrick Moorhead, president of Moor Insights and Strategy and a long-time executive at AMD. "But I believe that based on the CEO that they picked -- Krzanich -- they will largely follow the same strategy they've been using."

Intel prides itself on its technical prowess, and Krzanich's background lies in the operations side of things. Nuts and bolts and cutting-edge chip manufacturing are in his blood.

"Choosing Krzanich means Intel will continue to drive the heck out of their fabs [fabrication facilities] and fab technologies," Moorhead says.

The official Intel line closely matches Moorhead's prediction.

"Certainly the new leadership will be looking at some new strategies," Intel technical manufacturing manager Chuck Mulloy told PCWorld via email. "They have said today that they would expect to continue to leverage our existing strengths of design and architecture along with unmatched silicon expertise from a process and transistor perspective, but also in terms of our ability to scale."

In other words, Intel will continue to try to out-engineer the competition rather than veering off in a new direction under Krzanich. Here's how he -- and Intel -- are likely to proceed.

Mucho mobile

The biggest nut Intel absolutely has to crack is the mobile market. Like Microsoft, Intel was caught flat-footed by the ascension of smartphones and tablets, and it's now scrambling to stay relevant in an increasingly mobile world.

Building from an energy efficiency-first perspective, ARM has a mammoth lead among smartphone and tablet makers, but Intel is rapidly closing the gap. A handful of Android phones, all outside the U.S., already run on the company's x86 smartphone silicon, and Intel's latest tablet-focused Atom chips sip power with the best of them, while delivering full compatibility with legacy Windows apps.

Moorhead expects Krzanich and crew to lean hard on Intel's fabrication prowess to gain an edge.

"I expect Intel not only to add power parity and features [to its mobile chips], but also to be the lowest-cost producer," he says. There is a high likelihood of that happening, Moorhead says, if Intel manages to build mobile chips using the 14nm manufacturing process in 2014, as expected. That would make Intel's process technologically superior to the 20nm process currently used by TSMC, the contract chip foundry that cranks out processors for top ARM suppliers such as Qualcomm and Nvidia.

The threat of Intel's technological dominance has already prompted TSMC to convert to the 16nm process in 2014, a year ahead of schedule. The company's fear is well-founded: Just ask AMD how tenaciously Intel holds onto an advantage once it gains a nuts-and-bolts edge.

How PCs got their groove back

For all the talk about smartphones and tablets and smart coffee makers, though, Intel's true bread-and-butter remains the traditional PC market, where the vast majority of computers rock Intel Inside. (Sorry, AMD -- it's true.) The industry, despite its general woes, still treats Intel well, as evidenced by the company's revenues of $53.3 billion in 2012. Intel even raked in $12.6 billion during the first quarter of this year, when manufacturer sales plummeted.

Still, a thriving PC industry means an even-more-thriving Intel.

"Intel's number-two priority is to make PCs sexy again, by investing in new usage models and new form factors," says Moorhead.

What does that mean? Look to Ultrabooks: Intel pretty much single-handedly created the thin-and-light laptop genre on the Windows side. Sure, Ultrabooks may have started out as MacBook Air clones, but now they're a breed of their own, complete with industry-propelling standards such as fast boot times, battery life minimums, and (in 2014) touchscreen displays. Intel owns -- literally -- the Ultrabook brand, and breathed life into it via a $300 million innovation fund.

Look for Intel to stimulate hybrids in a similar way -- though maybe without the $300 million -- to get its PC cash cow lactating once again. Witness the company's reference design for a Haswell-based hybrid, unveiled at this year's CES. Beyond its stunning aesthetic, the device sported a 13-hour battery life, a dynamic display size that changes depending on whether you're using the machine as a tablet or as a notebook, and several other thoughtful touches.

The upcoming Haswell and Bay Trail chips will theoretically deliver unprecedented energy efficiencies (for x86 silicon) and should provide a big boost for Core processor-based hybrids and tablets. Tablet-thin but PC-powerful computers aren't out of the question with these processors, if Intel delivers on its power promises. Expect Intel to spur manufacturers to adopt these radical new PC designs.

Also expect Intel to push its Perceptual Computing concept, which aims to bring nontraditional input methods such as voice controls, gesture recognition, and face reading to the mainstream. (Touchscreens fall under the Perceptual Computing umbrella, too.) Intel demoed a software developer kit for the long-promised initiative at Mobile World Conference in February.

Not only are Perceptual Computing technologies sexy and innovative, but they're also CPU-intensive. Oh, Intel -- you're so clever.

Coffee and Google Glass, anyone?

Moorhead expects Intel to delve into the booming "Internet of Things," creating processors designed to run Fitbits and app-powered fridges and their ilk. Connected devices don't need much oomph, but they do need basic chips, and nobody does chips better than Intel.

"With this whole 'Internet of Things,' where processors are in literally everything from your clothing to your glasses to your TV and your coffee maker, what processor is Intel going to bring to the table for that? Atom is 1 watt in a smartphone, but Internet of Things processors are a tenth of a watt," Moorhead says. "Going a few process nodes down isn't going to get you there."

Krzanich's background surely predisposes him to tackle engineering problems like the design and mass manufacturing of this new breed of processor. If Intel solves its power-efficiency conundrums -- and it's on the right track, thanks to its mobile ambitions -- the company's beastly fabs could be a perfect spawning ground for legions of simple IoT chips.

Pumping out millions of simple chips probably isn't a priority for Intel, but the Internet of Things is definitely on the company's radar.

Engineers for hire

Watch for an expansion of Intel's custom chip business, which uses Intel's fabs to build unique processors for other companies. Intel has already signed up to make custom chips for Altera, Microsemi, and Tabula; and with Intel's vaunted fabs reportedly running below capacity during the recent PC downturn, some observers expect Krzanich to take Intel more fully into the ronin route.

Hey, AMD is doing it. Why not Intel? Full speed ahead!

Slow your horses. Yes, fabs need to be running to make money -- and yes, Krzanich has a strong engineering background. But manufacturing prowess is at the heart of Intel's power. It makes sense for the company to take on some custom chip jobs, but Intel shouldn't necessarily rush to fill their fabs with other people's work.

"Intel's first preference is to always fill the fabs with their own products," says Moorhead. "Doing so, they're basically double-dipping compared to something like TSMC, where TSMC makes the manufacturing margins and Qualcomm makes the design margins. In-house, Intel captures both of those."

Intel still needs to manufacture hundreds of millions of processors to meet the demand for basic PCs and laptops, even in these glum times. And if Intel ever (hopefully, eventually) becomes competitive in the mobile market -- much less the Internet of Things market -- it will need big volumes there, too. Big volumes mean full fabs.

An expanded custom chip business isn't out of the question, though. Processors-to-order can keep the fabs a-flowing until Intel strikes the mobile mother lode.

Intel does bring unparalleled processor design technology to the table. Then, too, some of its fabs are running slim these days, and the custom chips they've designed thus far have all been of the high-margin variety. Plus, the impending move to larger 450mm wafers means that existing fabs will have even higher capacities in the future.

"If they don't feel they can fill their fabs [with in-house work], that's the time for Intel to do a very broad foundry business," Moorhead says. Dean McCarron, principal analyst at Mercury Research, told PCWorld that eventually 20 percent of the chips coming out of Intel fabs will likely be contract work, no doubt of the high-margin variety.

So, we might see Intel take on more custom foundry customers here and there, but it's basically a side gig -- albeit potentially a billion-dollar side gig.

But hey, it's always good to have a Plan B. Intel has to pay for that $18 billion in R&D costs somehow.

This story, "Intel's new CEO must get inside next-gen devices" was originally published by PCWorld.

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