Intel refocusing itself, and its revenue stream, on cloud

Chip maker will put cloud at its center

With Intel looking to lock in on the next big thing and cloud continuing to grow in importance, it makes sense for the chip maker to seize on cloud computing as a way to transform itself.

That's the word coming from industry analysts after Intel this week announced it will lay off 12,000 employees -- or 11% of its global workforce -- as it shifts focus from its traditional PC business to the Internet of Things (IoT) and the cloud.

With PCs seen as yesterday's tech trend, Intel is betting its future on the growth of the cloud, which stores everything from music to corporate records and powers enterprise apps and billions of smart, connected devices.

The cloud, Intel wagers, will be the company's primary growth engine.

"Intel appears to have decided that it can't wait any longer for a hoped-for revitalization of traditional PC markets," said Charles King, an analyst with Pund-IT, Inc. "Intel's restructuring initiative certainly brings to mind the company's recent disappointments, but also highlights its willingness to come to grips with those challenges."

King pointed out that the company's numbers back up Intel's vision.

Revenue from Intel's cloud and IoT businesses grew by $2.2 billion in 2015 and made up 40% of its revenue and the majority of its operating profits, offsetting declines in the PC market segment.

Without even focusing on them, the cloud and IoT, which is powered by the cloud, have been propping up the rest of Intel's business.

"Intel is, by no means, in trouble," said Jeff Kagan, an independent industry analyst. "However, they are going through an enormous transformation. The Intel of tomorrow will not look like the Intel of yesterday."

Kagan noted that while growth in PCs continues to slow, it's still an enormous business for Intel and will be for quite a while. Endpoint Technologies reports that worldwide PC sales are averaging $30 billion per quarter.

"Intel will continue to milk this PC chip cow while at the same time reinvent itself for the future," Kagan added. "Intel has a two-part challenge. Part one is continuing to lead in the PC chip business. Part two is more rapidly moving into new areas... with more focus on the cloud."

The question is what Intel's new focus on the cloud will look like, and what changes it needs to make internally to realize the new goals.

Patrick Moorhead, an analyst with Moor Insights & Strategy, suggested that the company will simply double down on its current cloud efforts.

"Intel has 95% market share in enterprise servers and more in enterprise cloud," Moorhead said. "I believe Intel will accelerate its spend in the private, enterprise cloud. These are in areas like OpenStack, virtualization and containers." The private cloud is about five years behind the public cloud, he added.

King noted that he doesn't expect any shocking changes for Intel, saying this is more of a "course correction" than a major overhaul of the company.

"By any measure, Intel is one of the cloud's leading vendors," said King. "The restructuring is partly designed to help the company maintain that position."

Copyright © 2016 IDG Communications, Inc.

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