Personal Finance

3 Ways Intel Corporation Leverages Its Atom Investment

A coin on top of a silicon wafer.

Intel (NASDAQ: INTC) infamously tried and failed to become a major player in the market for both smartphone and tablet applications processors after spending billions on product development as well as on contra-revenue payments to help shoehorn expensive platforms into low-cost devices.

At the heart of Intel's mobile applications processor strategy were its low-power Atom processor cores. Intel's Atom cores can run the same software that its higher-end Core processors can, but they are fundamentally designed for lower performance, lower power consumption, and lower cost than their Core counterparts.

A coin on top of a silicon wafer.

Image source: Intel.

Now, even though Atom-based products didn't cut it in the world of mobile applications processors, Atom technology continues to power products that ultimately generate substantial revenue for the company.

Here are three areas where Intel leverages Atom.

1. Cable gateway chips

Although Intel doesn't talk about it too much, it is one of the leading vendors of chips that power cable modems (also referred to as cable gateways).

Intel entered this market with its 2010 acquisition of Texas Instruments ' (NASDAQ: TXN) cable modem business.

At the time, the company said that Texas Instruments' cable modem business "enhances Intel's focus on the cable industry and related consumer electronics (CE) market segments, where the company's expertise in building advanced system-on-chip (SoC) products, based on Intel Atom processors, will be applied."

This was certainly one of Intel's better acquisitions, as it quickly delivered on this promise.

Texas Instruments' Puma 5 series of cable gateway chips were powered by ARM processors, according to PC World, but the follow-on to the Puma 5, known as the Puma 6, used Intel Atom processor cores.

Intel's latest Puma chip, known as the Puma 7, also uses Atom cores, and I would expect all future Puma chips from Intel to utilize future Atom processor cores.

2. Personal computers

Intel has been getting increasingly aggressive about segmenting its personal computer processor lineups in a bid to maximize profitability.

In the past, Intel would take high-end Core processors and significantly defeature them to go after the low-cost portion of the personal computer market. This strategy wasn't great, as it led to subpar products with relatively high cost structures (both in terms of the chips as well as the surrounding platform components).

Over the last half-decade or so, Intel has been more aggressive about building cost-optimized chips for the low-end portion of the personal computer market, leveraging its Atom processor technology to do so.

The Atom processors tend to have a higher level of integration than the higher-end Core processors, and the Atom processors themselves tend to be much smaller (and thus much cheaper) to build than their Core counterparts.

The use of the Atom processor cores (as well as intelligent use of Intel's other intellectual properties) has allowed Intel to build products for the low-cost personal computer market that not only have much better cost structures than the defeatured Core chips of the past (leading to better margins for Intel), but the products are genuinely better.

Although Intel's mix of products continues to shift away from the low end of its product stack and toward its Core based processors, the Atom-based Celeron and Pentium chips for the personal computer market still generate substantial revenue and gross profit dollars for the chipmaker.

3. Data center

Although Intel's big moneymakers in the data center are its Core-based Xeon processors, the company also builds products for the data center that incorporate its Atom processor cores.

These Atom-based parts tend to go into applications such as networking and storage within the data center. Intel's high-performance Xeon processors power such applications, too, but for applications that don't require the kind of horsepower than the Xeon processors can deliver, the Atom-based parts can be more appropriate.

Intel doesn't disclose what portion of its data center group (DCG) revenue comes from Core-based Xeon processors versus Atom-based parts, but the Atom-based parts do continue to sell and do generate revenue and profit for DCG.

10 stocks we like better than Intel

When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Intel wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of August 1, 2017

Ashraf Eassa owns shares of Intel. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Other Topics


Latest Personal Finance Videos

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More