Intel to Break into Virtual Reality, Autonomous Vehicles

In pursuit of its goal, Intel pledged to invest billions of dollars in data centers, artificial intelligence and computer networking.

by Mike Rogoway, The Oregonian, Portland, Ore. / February 13, 2017
Photo Courtesy of Shutterstock

(TNS) -- Coming off the most eventful year in its history, Intel suggested Thursday, Feb. 9 that its transformation is ongoing and long-term.

With the PC market facing prolonged decline, executives at Intel's annual investor day said the company is depending on explosive growth in new markets or in established industries where it currently has a modest foothold.

The company envisions a future enabling self-driving cars, virtual reality and superfast 5G wireless networks. In pursuit of that goal, Intel pledged to invest billions of dollars in data centers, artificial intelligence and computer networking.

"We're in a unique position in time where computing, memory and the requirements for large amounts of data are all converging," Intel chief executive Brian Krzanich said.

He was back at corporate headquarters in California for Thursday's meeting, a day after making a surprise visit to the White House to announce a $7 billion investment to open an idle factory in Arizona.

If Intel carries off its overhaul, the chipmaker will have remade its business on the fly and profited from the kind of technological change that has rendered other established companies obsolete.

"When I look at Intel three years, five years out from now, I do believe the complexion of the company and where they generate their revenue is going to change significantly," said Angelo Zino, equity analyst at S&P Global Market Intelligence.

Challenges abound, however, as Intel seeks to reposition itself in markets that haven't yet emerged with technologies it has yet to invent. Intel warned Thursday of slow growth and modestly lower profits over the next few years, weighed down by the struggling PC market.

Already, the transition has been painful: Intel eliminated 15,000 jobs in 2016 as it recalibrated in anticipation of the PC market's slide. It moved jobs and spending to new sectors.

And Intel warned Thursday that it will be some time before the fruits of its efforts become apparent. The company said it expects sales growth in the low single-digit percentages in each of the next three years, weighed down by continued declines in the PC market. Intel also said operating profits will be modestly lower.

Investors weren't pleased: Intel shares slid 2.5 percent Thursday to close at $35.46.

Intel's current business consists primarily of two segments: PCs, which supply most of its revenue, and data centers, which deliver half of Intel's operating profits. Intel dominates both markets thanks to its industry leading microprocessors, with succeeding generations of technology crafted by its researchers in Hillsboro.

The PC market has been in decline for years, undermined by new mobile devices and the absence of compelling features to prompt consumers and businesses to upgrade their desktops and laptops.

And though Intel's data center business grew 8 percent last year, the company had been targeting annual growth of 15 percent. Intel said Thursday its long-term forecast is now a little north of 10 percent.

To compensate for those disappointments, Intel said Thursday it expects a huge boost in other markets: wireless technologies, computer memory and the emerging class of connected appliances and equipment called the Internet of Things.

Those businesses represented less than 5 percent of Intel's revenues last year. By 2021, though, the company envisions their share of its potential market doubling, tripling or quadrupling.

It may be unrealistic to expect those new segments to make up that large a share of Intel's business, Zino said.

"Even if you see that double-digit growth pace, it's probably not going to be big enough given the sheer size of Intel that it's going to move the needle," he said.

However, Zino said that even with the more modest growth and profit forecasts Intel issued Thursday, the company's data center business is robust and has huge growth potential and by itself could fill the void created by the fading PC market.

Indeed, Intel said Thursday that it will start putting the first chips from each new generation of processor technology in data center products. Historically, PCs had been first to get Intel's new chips.

"This is a company that is going to be heavily driven and dominated by the data center business," Zino said.

At Thursday's meeting, investment analysts pressed Intel on its spending plans and declining profit margins. Krzanich, the CEO, said investors should cheer the company's investments.

Intel spends $10 billion or more each year to upgrade factories in Oregon and elsewhere that give the company its lead in computer chip technology. With the PC market ebbing, Krzanich said Intel needs to find new areas where it can capitalize on its enormous investments.

"The minute you stop growing," Krzanich said, "you're basically saying over time the likelihood you'll run out of the ability to afford those factories and then that leadership will slowly diminish."

©2017 The Oregonian (Portland, Ore.) Distributed by Tribune Content Agency, LLC.