Did Intel take steps to reduce its contra revenue?
Intel's growth strategy and offerings in the PC market (Part 9 of 17)
Intel’s step of “contra revenue”
Intel (INTC) took the drastic step of “contra revenue” to focus on expanding its market share at the cost of shrinking its margins. However, Intel isn’t the first company to do this. In the past, Microsoft (MSFT) adopted this strategy. Microsoft would bundle its software together. This venture was financed by the company’s profits from Windows or DOS (disk operating system).
The above chart lists the key improvements Cherry Trail has over Bay Trail-T. You can consider investing in the Market Vectors Semiconductor ETF (SMH) or the Technology Select Sector SPDR Fund (XLK) to gain exposure to Intel. Intel makes up about 19% and 3.55% of these ETFs, respectively.
New products will reduce contra revenue
In place of Bay Trail, Intel aims to launch Cherry Trail—a platform. It’s expected in 2015. However, the question that still comes to our mind is whether Cherry Trail, like Bay Trail, will also require the contra-revenue offsets.
Moving from 2014 to 2015, although Bay Trail is still sold, the offset per unit has been reduced with chip revisions. Realizing the dip that contra revenue is making on its margins, Intel stated its plan to roll out new products. The new products are expected to lower the impact of contra revenue.
Cherry Trail will be replacing Bay Trail. It’s targeted for high-end tablets. SoFIA 3G/LTE is intended for low-end and mid-range tablets.
Cherry Trail is a 14nm part. It features four “Airmont” processor cores and a 16 graphics core version of the Gen 8 GPU (graphics processing unit) found in the upcoming Broadwell processor. It supports both Microsoft Windows 8.1 and Google’s (GOOG) (GOOGL) Android.
As a result, Intel aims to build all of its future mobile platforms with competitive levels of integration and a cost-competitive platform bill of materials. However, timing is the issue. These products likely won’t make it to Intel’s tablet mix until the second half of 2015.
Browse this series on Market Realist:
