Why Intel Created Its Client Computing Group




In the first part of this series, we learned that Intel (INTC) merged its PCCG (PC Client Group) and MCG (Mobile and Communications Group) into a single CCG (Client Computing Group) in 1Q15. The integration comes as the difference between PCs, tablets, two-in-one tablets, and phones fades away with mobile computing.

The SoC (system-on-a-chip) market is expected to grow at a compound annual growth rate of 10.5% to reach $71.98 billion by 2021. This would be an increase from $35.95 billion in 2014, according to Transparency Market Research’s report titled “System-on-Chip Market – Global Industry Analysis, Size, Share, Growth, Trends and Forecast, 2015 – 2021.”

As the name suggests, SoC is a type of circuit that has a computer system integrated onto a single chip. It’s mostly used for mobile and other embedded systems such as digital watches.

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As seen in the above graph, Intel’s PCCG reported positive earnings in all four quarters of 2014, but MCG reported losses driven by lower sales and higher research and development expenses. Despite these losses, the company shipped 46 million tablet chips in 2014, exceeding its 40 million target. MCG has the potential to become profitable if there is an increase in sales volume.

Intel’s position in the mobile industry

Intel has been slow in reacting to the mobile trend and is way behind its rivals in terms of technology. It faces tough competition from Qualcomm (QCOM), Apple (AAPL), and Samsung’s (SSNLF) ARM chips. Intel now intends to get in the game by leveraging its strength in processors, memory storage, and communications into a single SoC.

Intel’s technology in the mobile space

Intel has developed the Core M line of processors along with the Core i3, i5, and i7 processors specifically for notebooks, tablets, fanless ultraportable devices, and two-in-one tablets with detachable keyboards.

In collaboration with Micron (MU), Intel has developed 3D XPoint, a non-volatile memory technology that is believed to be a replacement for the NAND flash storage used in mobile devices.

Intel also plans to design its professional-class Xeon processors for notebook computers.

Lastly, Intel has developed the Atom X3 SoFIA (smart or feature phone on Intel architecture) SoC, which is expected to go into production in early 2016.

Initial investment in technology development is likely to reap long-term benefits and put Intel in a more competitive position.

You can get exposure to Intel by investing in the VanEck Vectors Semiconductor ETF (SMH). SMH has 18.93% of its portfolio holdings invested in Intel.


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