How Intel is buying a piece of the tablet market

The result will be a lot more tablets with Intel inside

By , IDG News Service |  Hardware

With contra revenue, Intel is paying tablet makers to cover the additional bill of materials (BOM) costs. "This is not a price reduction; it's truly a BOM cost equalizer," Krzanich said. It will also pay for "non-recurring engineering" costs, which means it will cover the cost of taking an ARM tablet design and porting it to an Intel chip.

Intel hopes the subsidies will seed the market with x86 tablets, and that next year, when Broxton and SoFIA appear, it will no longer need to pay them. Those chips will be more integrated than Bay Trail. SoFIA, for example, will come in two versions, one with integrated 3G and one with both 3G and LTE.

The bill of materials cost for a Broxton tablet will be US$20 less than for Bay Trail, Krzanich said. SoFIA, with its greater integration and smaller die size, will cost even less, he said.

Even with SoFIA, though, Intel will make a significant concession: The chip will be manufactured not in Intel's own fabs but by contract manufacturer TSMC. That reflects Intel's need to get the product out quickly, said Nathan Brookwood, principal analyst with Insight64.

"When Intel looked at all the different pieces of [intellectual property] they would need for a low-cost, integrated part, many of them are available off-the-shelf at TSMC. They realized it would be easier just to port Atom to TSMC's 28-nanometer process," he said.

To put Intel's target of 40 million tablets this year in context, Apple sold about 70 million tablets in its fiscal year that ended last September.

Some analysts think Intel will reach its target. "If you'd asked me six months ago, I would have been a lot more skeptical," said McCarron at Mercury Research. But the contra revenue plan makes it "cost neutral" for tablet makers to use Bay Trail, he said.

In addition, Intel chips and Microsoft's OSes are no longer "bolted together" as they were in the past. "The breaking of that, and actually seeing vendor interest in Intel-based Android systems, changes everything," McCarron said.

The subsidies should help Intel find its way into millions of low-cost tablets produced in China, but Bay Trail may also find traction among top-tier vendors such as Samsung, Hewlett-Packard and Dell, said Patrick Moorhead, principal analyst at Moor Insights and Strategy.

"I expect there to be more Intel silicon overall at Samsung in the future," Moorhead said. He expects the 40 million tablets to be split about evenly between China's Shenzhen region, where many low-cost tablets are produced, and top-tier OEMs.

"The ones to keep an eye on are Apple and Samsung," McCarron said. "It's difficult to imagine Apple making the transition -- that's a difficult one for me to get my head around. But Samsung might be a little more open and flexible."

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