Intel’s Need to Pivot for PCs Post Apple

I have done a number of media and investor calls in the wake of the confirmation of the latest worst kept secret that Apple was transitioning away from Intel for Macs. The question came up, and it is a good question to ask, as to whether other dominant platform and hardware companies will move to make their own silicon in the future just like Apple.

I have no doubt the temptation has loomed. Especially since Arm is making it easier and easier for companies to acquire a license and tweak their solutions to their needs. Apple, along with a small handful of others, has a more robust architecture license to Arm IP and completely customize architectures based on just the Arm instruction set. Companies like Amazon, Microsoft, Google, etc., don’t need to be architecture licensees of Arm in order to modify silicon more toward their liking and vision. This is why the temptation will hang around.

Before I go deeper, I need to make some clarifying points about Intel for context.

  • First, Intel losing Apple as a customer will only have roughly 2-4% revenue loss. Not much of a hit, and that is why Intel’s stock did not take a significant hit upon this news. In fact, Apple moving away from Intel has been priced into its stock for at least a quarter or two.
  • Second, Intel’s cash cow is the datacenter, not PCs, or the client business as it is called technically. Depending on the quarter, Intel’s client revenue from chips sold to PC OEMs varies between 27-30% of total revenue. That number has been shrinking, slowly, for some time now. I’m not mentioning this to suggest Intel does not care about the PC business, only that it has been a steadily shrinking part of their annual revenue.
  • Lastly, to be clear, the threat to Intel is a loss of share to a competitor. Something Apple is not given they do not, and will not, offer their silicon solutions to anyone other than themselves. The threat to Intel is AMD, and to a degree, Qualcomm is Arm-based Windows PCs can be successful and gain a significant share of the PC market.

Given that context, it is worth looking at what Intel can do in the PC space to better compete and fend off share loss by AMD, and potentially Qualcomm. And the answer to that is rooted in the reason Apple is leaving Intel.

As I explained in my column Tuesday, the clear message Apple sent as their reasoning to shift away from Intel in Macs was because they have a vision to build products they simply can’t with what Intel is offering. It is this idea that could become attractive to other Intel customers. Interestingly, Microsoft may be giving us the trend PC OEMs may follow.

In last Fall’s Surface launches, Microsoft released two new computers that did not run Intel processors. One they launched in conjunction with AMD, which was a collaborative processor design that had specific tuning Microsoft wanted to make to deliver a specific experience with a Surface. Second, was another collaboration with Qualcomm to release the SQ1, which was a custom version of Qualcomm’s ACX processor that was designed for Microsoft Surface Pro X. In both these devices, Microsoft wanted to deliver a specific experience, and to do that, what was offered off the shelf was not sufficient. The only Surface product that did not have a high degree of silicon customization was the Surfaces launched on Intel silicon.

As of now, both Qualcomm and AMD have shown their willingness to partner and create custom variants, optimizations, and other customizations for customers. Interestingly, Intel does offer custom solutions in some cases. If a customer wants a total custom solution, Intel will work with them, but it won’t be cheap since it is just for that customer, and volume would be low. Intel is more willing to collaborate if the customer’s need or ideas, is general enough. It can be applied to more customers or future Intel technology. While I’ve heard Intel lay out these options, and I’m sure some customers (mostly in the data center) may take Intel up on it for the PC business, I know of no one collaborating with Intel on anything like what Microsoft did with AMD and Qualcomm.

Ultimately, this is the pivot I think Intel needs to make. If their competitors are willing to do it, Intel must as well, or they will risk losing design wins, particularly in the high-end of the PC market. There is a risk for PC makers as others like Apple or Microsoft start further differentiating their products with custom silicon, which enables them to do and create products and product experiences those who run off-the-shelf silicon can not.

Alan Kay’s famous quote, “those who are serious should make their own hardware,” was certainly an inspiration for Steve Jobs’s conviction To control their whole stack. I’ve since adapted that saying to add “those who are serious about platforms should make their own silicon.

When you ship the same software or components as your competition, you end up losing a great deal of differentiation. Differentiation is what fights of commoditization, and if you can’t differentiate, you will be commoditized by a competitor who will do it cheaper.

This is ultimately where I think Intel needs to wrestle with how they will help customers in the PC business compete in the high-end when two companies who sell a lot of premium PCs in Apple and Microsoft are going deeper to control more of their core components. If the trend continues, Intel risks not necessarily losing tremendous share in PCs but losing share in the ever-important and highly valuable premium sector of PCs.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

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