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Why Did Intel Exit the Mobile Processor Business?

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Intel’s mobile business

In the previous part of the series, we saw that Intel (INTC) is squeezing out profit from the client business as it moves away from PC and mobile towards data center, IoT (Internet of Things), and memory. The company lowered its spending in the CCG space and expects revenues to fall by high single-digit in fiscal 2H16.

One main aspect of CCG is Intel’s mobile business. It was integrated with PC business in fiscal 1Q15 after the former reported a $4 billion loss as its contra revenue strategy backfired. Under contra revenue, Intel sold its Atom chips at a highly subsidized rate to gain market share. In 2015, Intel’s mobile chip shipments rose 66% YoY (year-over-year) and captured just a 1% unit share in 2015, according to Strategic Analytics.

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Intel exits mobile processor business

A few days after reporting its fiscal 1Q16 earnings, Intel pulled the plug on its Atom X series processors used in mobile and tablets. Intel took this step because its Atom processors failed to compete with Qualcomm’s (QCOM) ARM-based processors. The little share that Intel had in the mobile market was eaten up by Qualcomm. It reported 4% YoY revenue growth in fiscal 3Q16.

Even NVIDIA (NVDA) exited the mobile business in mid-2015 due to tough competition from Qualcomm.

Intel’s exit from mobile processor business reduced CCG revenues and improved profits. Since 2015, Intel reduced $1 billion from the $4 billion loss incurred by the mobile business. It’s on track to reduce another $800 million loss in fiscal 2016.

Intel’s exit from the Atom chip business raised concerns if it would still power Google’s (GOOG) Android OS (operating system). In response, Intel stated that it would continue to support Android in “different product lines including Chromebooks, tablets, and IoT products.”

Intel continues baseband modem business

Intel exited the mobile processor market, but it still sells LTE (long-term evolution) baseband modems. In its fiscal 2Q16 earnings call, Intel announced that it started shipping its latest 7360 LTE modems.

There are rumors that Apple (AAPL) has selected Intel as the second supplier for LTE modems for its iPhone 7. However, Intel remained tight-lipped about who it’s shipping these new LTE modems to. On the other hand, Qualcomm’s latest earnings showed that it lost some portion of its modem business from Apple.

Next, we’ll look at Intel’s data center business.

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