The departure of Paul Otellini from the post of head of Intel had the effect of a bomb exploding. Intel said that Paul simply wanted to retire, and analysts believed that this was a resignation due to the inability to develop the mobile business. Who is right?

Three years short of the mandatory retirement age, Paul Otellini, who worked at the processor giant for almost 40 years, including eight as president and CEO, decided to leave the post of head of Intel. He must devote the next six months to finding a successor and transferring affairs. Paul is leaving the company at a difficult time - the PC market, in which Intel x86 processors occupy more than 80%, is stagnating, and until recently the company could not offer the necessary chips to the growing market of smartphones and tablets. As a result, Intel's share here is negligible, and numerous manufacturers based on ARM architecture rule the roost. That is why there is a popular opinion that Intel was late to the market, and now to improve things, a change in strategy, platform, and at the same time management is required. But Otellini’s resignation is unlikely to be connected with this situation, since the current situation, and most importantly, Intel’s prospects are much better than it might seem from a superficial analysis.

According to preliminary estimates by Forrester, about 330 million desktop computers and laptops were sold in 2012, as well as 100 million tablets and 660 million smartphones. Thus, based on the shares of chipmakers, we can roughly estimate Intel's share in the consumer processor market as 25%. In the PC market, the “remnants” belong mainly to AMD, but ARM processors for mobile devices are produced by numerous manufacturers, among which Qualcomm, Samsung, Broadcom, MediaTek, TI are leading in terms of shares. Apple and Nvidia are leaders in the production of tablet processors. The market is divided into relatively small shares that are comparable in unit terms, but prices for processors vary significantly. There are no reliable sources here, and analyst reports are incomplete, but the owner of the intellectual property, the British ARM Holdings, considers processors costing from $25 “expensive”, and estimates mid-segment processors at $17-25. iSuppli prices Apple processors at around $18. At the same time, prices for consumer Intel processors are in the range of $100-$200. And the margins of, say, Intel and Qualcomm are comparable - more than 60%. This immediately makes Intel the undisputed leader in both turnover and profit. In the global “table of ranks” maintained by iSuppli, Intel ranks confidently in first place with revenue of $49.7 billion for 2011 and a market share of almost 16% versus 9 and 4% for Samsung and TI, which occupy the next lines (though here All chips are taken into account, not just processors).

It becomes obvious that Intel has a relatively modest market share in unit terms, but is impressively ahead of its competitors in terms of turnover and profit. This is similar to Apple's position in the smartphone market. True, the growth potential in the native “computer” market is really small, and we need to see what Intel can offer in those segments where the dynamics are good.

Despite the fact that Intel was very late with the mass production of smartphone processors, the main engineering step towards their production was made several years ago. It was under Otellini’s leadership that Intel abandoned the gigahertz race and took a development path in which increasing the energy efficiency of chips plays a primary role. Intel's dominant position in the laptop market is due to the fact that the company regularly releases processor updates that improve performance while reducing power consumption. Intel's manufacturing leadership provides significant assistance here: the company is ahead of all competitors in the introduction of thin technical processes, which results in more compact chips with low heat generation. Moreover, Intel usually does not have a shortage of production capacity. The release of flagship processors this year clearly illustrates the problem of competitors: while manufacturers working without their own factories like Qualcomm and Nvidia could not arrange sufficient supplies of chips on the 28 nm process technology, Intel consistently supplied more technologically advanced 22 nm Core processors.

It is very significant that Intel was able to solve the difficult engineering problem of adapting the x86 architecture to the smartphone world. This year , several smartphones based on the Intel mobile chip appeared , which does not provide significant advantages over existing ARM processors, but also does not have significant disadvantages. The market share was less than a percent, but Intel in one leap made up for about a five-year lag in technology and introduced a product that would have looked quite decent in 2011. It's a year late, but if it maintains its current momentum and with the help of the aforementioned sophisticated technologies, the company can formulate an attractive proposition to leading smartphone manufacturers for 2014 and beyond. With Forrester predicting that more than 1.6 billion smartphones and tablets will be sold in 2016, significant redistribution of this market, as well as the component market, is still possible, and there could certainly be a place for Intel in it.

But the main intrigue is that in the smartphone segment it will be impossible to maintain high prices that are comfortable for Intel. In the x86 laptop processor market, prices are not falling, since Intel essentially maintains a monopoly position and stable margins here. But smartphone processors, thanks to the common ARM architecture, are generally compatible with each other, which provokes competition between manufacturers, including in price. Profitability in this segment will decline in the medium term. To maintain its privileged position, Intel will have to find a unique differentiator, a special property of its mobile processors that will allow them to sell for more than competitors from the ARM camp. Perhaps this will be the most important task of the new CEO, along with the boring questions of optimizing factory load and resolving patent disputes.

Sergey Malenkovich

What is behind the change of Intel president