Intel Aims to Break Into the Tablet Market by Paying Firms to Use its Chips

by Istvan Fekete on January 20, 2014

Intel is confident that it will have an amazing 2014, and that it will ship 40 million tablets with its Bay Trail processor. And the company has a pretty good reason for that belief.

We all know that Intel aims to become a noteworthy player in the tablet market, but it has failed to achieve this – until now. There is a practical way to make it happen: pay firms to use their chips.

Intel calls it “contra revenue”, and it sounds innocent enough. It’s one of those financial terms that is ignored by some investors and people outside the investment community. A site devoted to company earnings, Seeking Alpha, has highlighted the meaning of “contra revenue”, so that we can fully understand Intel’s strategy.

It’s a fact: Intel is, in essence, paying tablet manufacturers to adopt its Bay Trail Atom processors. The goal: it desperately needs to enter the rapidly growing tablet market.

As the chip maker put it to CNET: “It is not unusual for us to put programs in place to incentivize customers and accelerate the market for our products, and we’ve been clear about our desire to grow market share in tablets.”

Since there isn’t much to hide – because we’ll find out anyways – Intel revealed its contra revenue strategy with clear steps last November during its investor meeting. Chief Financial Officer Stacy Smith highlighted the innovation behind Intel’s Bay Trail Atom chip, the company’s plans for the tablet market, and contra revenue:

“Our goal is to quadruple the tablet volume to get to north of 40 million units…We want to start building momentum in a very significant way in 2014. In order to do that, we’re going to be aggressive in the market working with our customers. We’re working with them from the standpoint of providing nonrecurring engineering, where we’re helping them port over designs. And we’re being aggressive with them in terms of providing contra revenue to them in order to help them through the bill of materials that our product line drives until we can get to a bill-of-materials-reduced platform, which kind of happens over the course of 2014.”

If we look back to Intel’s past marketing strategies, we find several successful attempts to boost market share using contra revenue: the company created the $300 million Ultrabook Fund in 2011, and had a program called Market Development Funds, or MDF.

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Written by: Istvan Fekete. Follow by: RSS, Twitter, Facebook, or YouTube.

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