Change in the technology sector is not anything new. PC desktop and laptop hardware, still the heart of Intel’s business, is weakening. As the biggest supplier for chips in the computing sector, Intel must change its operational structure to adopt for the shift away from the client-server model.
Intel is cutting 12,000 jobs, which accounts for 11 per cent of total staff. In its quarter ended March 31, the Client Computing group was still Intel’s biggest source of sales (US$7.5 billion). Sales improved by nearly 2 per cent (from last year) as customers bought Intel’s more expensive chips. By comparison, revenue from IoT was just US$650 million.
The growth of the Internet not only makes client computing redundant, but businesses are relying more and more to the online world. By realigning its business away from desktop chips, Intel will fuel growth in markets related to cloud computing and Internet of Things.
It does not help Intel’s Client Computing group when “client” computers are now outnumbered by mobile devices, including smartphones and tablets. Intel does not have a strong strategic presence in the mobile computing market. Its Atom chip is not widely used in smartphones. The Asus ZenPhone 2 is a good, Android smartphone that uses the Atom chipset. It is not clear how much market share Intel may realistically expect to gain from this partnership. Intel’s mobile segment is still losing money.
Looking ahead, Intel expects weakness in the next three months and the rest of the year. This is due to sales in the PC industry growing in the high single digits.
Intel’s decision to cut costs deeply at this time is similar to IBM’s transition plan. IBM shed some of its hardware computing businesses over the least few years. It bulked up its play in cloud computing and data analytics through company acquisitions.
It is too early to tell if Intel or IBM will succeed in its transition. The companies both want to reinvigorate growth by embracing web technologies. If anything, the cuts they are making now will keep them relevant as the computing market shift continues.
Last year’s acquisition of Altera solidifies Intel’s development in the data centre market. Altera’s expertise includes FPGA – field-programmable gate array, System on a Chip (SoC), and CPLD (programmable logic chip devices). All of these offerings means enterprises should expect more efficient and powerful processing for data centre. Altera’s technology will help Intel handle higher simultaneous computing loads, streamline logic processes, and cater to specific computing tasks.