​Editor’s note: Intel, building on core momentum to become a diverse technology enabler, surpasses expectations by achieving growth in all of its operating groups, writes Technology Business Research Analyst Daniel Callahan.

HAMPTON, N.H. – Intel’s 4Q16 results released last week mark continued growth of a leaner, more diversified chipmaker that is no longer wholly reliant on PC and server processors for growth. Intel revenue rose 9.8% year-to-year to $16.4 billion in 4Q16, marking two quarters of growth after a -1.2% revenue decline in 2Q16. Intel’s traditional businesses, Client Computing and Data Center, defied market trends with growth of 4.3% and 8.4%, respectively.

The chipmaker’s double-digit year-to-year gains of 16.2% in Internet of Things (IoT) and 24.8% in the Non-Volatile Memory Solutions group showed that while the processor remains Intel’s core business, Intel will methodically expand its ability to serve new markets. It will do so by scaffolding its processors with continued investments in new markets.

TBR expects Intel to continue developing and refining its traditional data center-oriented technologies, such as software-defined computing, to support its Data Center Group in offering the back-end processing capabilities to serve these new markets.

Intel’s operating margin declined 120 basis points year-to-year due, in most part, to a 5.2% increase year-to-year in R&D expenses, expected with Intel’s effort to buttress its existing portfolio as well as develop emerging technology.

Intel pairs its historical processor design and technology expertise with new investments in emerging technologies to become an enabler for partners and customers

Intel will remain a silicon company pushing the limits of processor performance per watt to meet modern device requirements. The company is leveraging its PC and data center processor strengths to bankroll its investments in emerging opportunities, such as autonomous vehicles and IoT, supported by investments in 5G, machine learning, FPGAs, virtual reality, silicon photonics and its underlying silicon expertise. The result is Intel’s new positioning as an enabler of technology that partners and customers can leverage to solve business problems.

TBR believes the more open-enablement strategy, encouraging partnership and interoperability, will allow Intel to cover a wider market and unearth new opportunities inside use cases or verticals it previously did not have access to as a pure silicon maker, including:

  • Intel’s Responsive Retail Platform, released in January and aimed at IoT in the retail vertical, will be an open platform allowing the tying in of third-party devices as well as the layering on of independent software vendor applications.
  • Intel is leveraging its know-how to enable specialized manufacturing services to allow customers and partners to customize silicon for specific needs, such as machine learning use cases or low-power needs.
  • Intel announced its Automated Driving Group (ADG) in 4Q16, which is focused on enabling self-driving technology for automotive manufacturers. Intel is expected to leverage recent established partnerships, Mobileye and Delphi, which specialize in this field, as well as previously acquired Nirvana, Itseez and Yogitech for machine vision and learning. Intel will invest an estimated $250 million in self-driving technology, and ADG will further enable driving assistance technology for current clients such as BMW, Daimler and Hyundai.
  • At CES 2017 Intel announced the compute card, a fully capable computer in a 95 x 55 x 5 millimeter package. TBR believes the card, which can be easily slotted in any device or endpoint, will allow Intel partners to more easily package higher computing power, as well as easier device management, into a wide range of smart or IoT-enabled devices.

Intel adjusts its GTM to verticals

Intel has traditionally been a horizontally focused company whose partners leveraged its general-purpose processors and chipsets across a broad range of PC and server hardware. As PC and server chip sales have slowed, Intel has refocused its business toward IoT and related technologies, such as 5G, delivered into products that are more vertical- or market-oriented. TBR research confirms this focus, finding that in commercial IoT customers seek vertically tailored, easily deployable solutions that directly address their pain points.

To meet customers’ needs Intel is beginning to readjust to meet specific end customer needs by increasing investments in vertical-specific IoT applications. TBR believes Intel’s Responsive Retail Platform and corresponding creation of a $100 million investment fund will support product development for the retail vertical. The platform will act as a retail solution hub, with the $100 investment being utilized to support development of curated IoT solutions for specific retail vertical problems. The investment will also include exploration of machine learning, augmented reality/virtual reality, and robotics for retail use cases.

Executive Vice President Stacy Smith noted in December that Intel will shift its sales organization to be more aligned with vertical markets. This will allow sales teams, which will each be assigned to a specific vertical, to better understand customer problems and suggest Intel products or services that can solve them. This will also enable better ecosystem sales. Instead of being focused on a product, a vertical focus will allow sales teams to reach across the entire Intel portfolio. For the automotive vertical, for instance, the sales team can not only offer a solution from ADG, but also products from the IoT Group, Client Computing Group and Data Center Groups to form a holistic solution.