NEW YORK – Last week Intel (NASDAQ:INTC) INTC +2.44% announced that the company was returning to their core business. While shares fell more than 5 percent on Friday, and have trailed the broader market this year, some analysts believe the return to the company’s core strategy could help Intel cope with the end of the personal computer.
However, it might be a bit too early to know whether the return to chips and processors will work. On Thursday, Intel CEO, Brian Krzanich, told that the company would do better in mobile devices than it has so far, including smartphones and tablets. The improvement in mobile devices will be achieved by renewing focus on the company’s traditional strength – having the most formidable manufacturing operation in the entire semiconductor field.
Krzanich’s announcement marked a sharp departure from the strategy of the two previous Intel CEOs, Paul Otellini and Craig Barrett. Both CEOs were outward looking, expanding what it meant for Intel to be a chip company. However, Krzanich, a 31-year Intel veteran of Intel’s oversees manufacturing operations, is trying to return the company to basics by emphasizing how Intel makes chips better than their competition.
The return to basics was foretold a couple of months ago when reports surfaced that Intel was wrapping up a secret project to set TV set-top boxes. That project, set up by Otellini, is scheduled to be sold to Verizon (NYSE:VZ) for an undisclosed amount.
In the return to chip manufacturing, Krzanich appears to be speeding up the effort to develop faster chips for mobile device. One such project has been named Atom and has been languishing in Intel’s product development pipeline for some time as it fought for resources from other projects including the TV play.
According to William Holt, Intel’s head of manufacturing, the company is now able to fit more transistors into each semiconductor at a faster pace than Taiwan Semiconductor (NYSE:TSM). This has resulted in chips that are 35 percent more compact than the competition. Less expensive and more power Atom chips, delivered on time, will give Intel a greater opportunity to meet the demand for lower-priced processors for tablets and smartphones. Traditionally, Intel’s chips were too large and too expensive for these products.
Whilst the shift in strategy is promising, it is too early to tell how this will affect cash flow, profits, and the company’s share price in the near-term. Given the uncertainty, investors should take a more cautious approach for over the next quarter or two. Shares of Intel closed down 5.39 percent at $ 23.87 on Friday, year-to-date shares have lagged the broader market but are still up more than 15 percent.