Intel (not) inside

Intel fares better outside than inside

Intel is faring better outside than inside. The division that powers remote servers known as the cloud helped boost the chipmaker's fourth-quarter bottom line by 39 per cent, to $3.7 billion. Intel's smartphones and tablets business, however, generated negative revenue because of incentives given to customers. It may be time to hang up on the effort.

The attempt to unseat rival ARM is becoming increasingly costly and quixotic. Intel's latest move was to introduce new chips for LTE, the dominant standard in wireless. Its offerings haven't proven superior in cost or power consumption over those from ARM, whose designs are used in more than 90 per cent of mobile phones. That Intel has to pay chipmakers to use its designs shows just how uneven the playing field is.

Broader use of its mobile wares will cut expenses by $800 million this year, Intel reckons. Much of the sum will come from reduced subsidies. That's a start, but the division lost over $4 billion in 2014. A better decision would be to stop its own efforts completely.

That would leave its factories running slowly. Intel only reaps substantial profit when they're operating at full tilt because of the heavy expense of building plants and developing new technologies. Intel plans to spend $10 billion on capital expenditure this year and a bit more on research and development. It can't slash either to any significant degree without risking the loss of a competitive edge.

The PC market may compound the problem. Sales have mostly levelled off this year, but could easily resume their downward trajectory as the march of tablets picks up and companies upgrade their desktops less frequently.

One big opportunity for Intel could be manufacturing more chips that are designed by other companies. Signing more deals would increase usage of its plants, even as it builds market share in the market for servers that run cloud services. The business has been growing at a 25 per cent rate and generates a healthy operating margin of 54 per cent.

Despite its well-known marketing slogan, Intel may need to accept that it doesn't necessarily have to be inside.