Published in PC Hardware

Yes, Intel is subsidizing Bay Trail tablets

by on20 January 2014

Only way to ship 40mn units

Over the past few months Intel made a lot of noise about upcoming Bay Trail tablets and it even promised $99 tablets based on x86 parts in the near future. During Intel’s last conference call the company announced that it plans to ship 40 million tablet parts this year. To reach this optimistic goal, Intel is resorting to old tricks – subsidies.

According to PC World, the true extent of the programme was revealed at a meeting in November. Execs were told to brace for an increase in operating loss from the division in charge of Bay Trail. However, Intel hopes the investment will pay off in the long run. Most analysts agree.

During last week’s quarterly earnings call, CEO Brian Krzanich said the majority of tablet related projects in 2014 will have some “contra revenue” attached to them. In other words the majority of Bay Trail products set to launch this year will be subsidized by Intel.

Intel will use subsidies to offset the higher platform cost incurred by the transition from ARM to x86 parts. Bay Trail is surprisingly cheap when compared to similar Intel chips, but it is still significantly more expensive than competing ARM parts from the likes of Qualcomm, MediaTek and Nvidia. However, Intel hopes this will not be the case in the future, when Broxton and SoFIA launch. Intel believes it will not have to subsidize next-gen tablet parts, but for the time being it will foot the bill for tablet makers looking to migrate from ARM to Bay Trail.

Krzanich said Intel will cover the difference and that it will also pay one-off costs, such as the cost of redesigning existing ARM tablet designs to accommodate Intel chips.

“This is not a price reduction. It’s truly a BOM cost equalizer,” Krzanich said.

The big question is whether Intel will manage to get some big names on board, such as Apple and Samsung. This seems highly unlikely, particularly with Bay Trail. In essence, Intel’s future tablet parts would have to be so competitive that they would force Apple and Samsung to ditch custom chip designs. In theory it could happen a couple of years down the road, but we wouldn’t bet on it.

It is interesting to note that most analysts appear to be focusing on the ARM angle, but there’s another competitor in the x86 space that could be at a huge disadvantage if Intel chooses to extend its “contra revenue” approach to next generation mobile processors. AMD’s x86 parts are likely to come up against a similar set of challenges, but unlike Intel, AMD does not have millions to burn. Even if the subsidies are only limited to current generation Bay Trail chips, AMD will take a hit, as Intel will attract many OEMs with its decision to cover non-recurring engineering costs. Vendors who take the deal should be more willing to adopt next generation Intel parts even if there are no strings attached.

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