Intel Corporation (NASDAQ:INTC) will stop offering subsidies for Android tablets in 2015, according to Morgan Stanley analyst Joseph Moore (via Apple Insider). Although the company has succeeded in expanding in the tablet market, the strategy is costing it dearly.
Suspense over Intel plans
Most smartphones today are running on ARM’s architecture, and ARM chips are used by companies such as Apple, Qualcomm, Samsung, NVIDIA to name a few. Intel apparently offered subsidies to the OEMs to encourage them to use its architecture in their tablets, and also offered them compensation for any costs related to the modification of motherboard for adapting Intel Chips.
Previously, Bernstein research analyst Stacy Rasgon noted that Intel is offering $51 in subsidy, which is a significant rebate as some of the low-priced Intel-powered tablets are available for as less as $199.
Intel had to forgo approximately $3 billion on mobile chips in 2013 and is expected to lose another $4 billion this year. Intel will not swallow any further loss after $7 billion. Moore said, “While we do expect that [Intel] phasing out tablet subsidies over the course of 2015 will cause modest reduction in losses, it could also blunt the company’s momentum in tablets significantly.” According to Moore, to minimize the losses Intel will have to ramp up revenue, or cut costs aggressively, and there is no clear strategy for either.
Apple’s rising clout
Although Intel is trying to support its shattering x 86 1990-era WinTel Empire, the subsidies indicate company’s acknowledgement of Apple’s increasing power. The iPhone maker has succeeded in selling high volume of niche products, an ability that has earned it favorable terms and conditions from its suppliers, including Intel as well.
Intel Corporation (NASDAQ:INTC) has offered huge subsidies to PC makers, which acknowledges the fact that the company wants to revive its WinTel era, where it sold expensive chips to manufacturers and its proprietary design was tough to copy. Intel and Microsoft together created a monopoly with PC makers left with no other option but to adopt Intel chips and Windows software at any price decided by the WinTel.
Apple felt deceived by the style of partnership from Intel, and concentrated on designing its own processors for the iOS devices. Since then, Apple has used its hardware revenue to build custom processors, which is not only better than Intel Corps Atom, but is also making way in the mainstream desktop processor.