End is in sight for Intel's contra-revenue efforts


— 4:38 PM on March 2, 2015

Intel may soon stop pursuing mobile market share by offering massive discounts on Atom processors. In a press briefing about the new Atom x3, x5, and x7 CPUs last week, Aicha Evans, Corporate VP and General Manager of Intel's Communications and Devices Group, suggested that such "contra-revenue" tactics won't be necessary with some of the new chips—and that, in the future, we shouldn't expect Intel to engage in these tactics at all.

In general, first of all, that was a very calculated move. I think our Chairman—the Chairman of our board—which was a pretty tough moment for us, stood up and said, "Look, this is something we're gonna have to do to get into the market and be relevant in the conversation." So, long term, you should not expect to be seeing that.

Now, nothing happens overnight. You don't lose 100 lbs overnight, right. So, some of the product will still have a little bit of a BOM [bill of materials] offset this year, but in general, we are now starting to be able to be in a position where we don't have to automatically offer contra revenue in order to make up for some of the BOM offset issues we have.

And I think we've been public also at the Investor Day . . . in November, and we set a very public [profits and losses] goal of $800 million of improvement in this space. And that comes from the mix, and that comes from the fact that we don't have to offer contra revenue in the SoFIA line and in some of these different lines, because we're getting more and more efficient in the BOM and the overall platform design and pre-integration.

The contra-revenue strategy has cost Intel quite a bit of money. Last quarter, revenue for the chipmaker's Mobile and Communications Group was -$6 million. The division only brought in $202 million in revenue for 2014 as a whole, down from $1.38 billion for 2013.

But Intel is hardly strapped for cash: its net income for 2014 was a cool $11.7 billion. And more importantly, the company could soon reap substantial rewards from its enlarged foothold in the mobile market.

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