Intel Gains Tablet Share at a Huge Cost

Why are Intel’s mobile unit revenues falling, while its tablet division appears to thrive?

The tablet market has seen a substantial increase in the adoption of Intel chips, with 10 million units in the previous quarter alone. Despite this, mobile earnings accounted for only $51 million, marking an 83 percent drop from the previous year and more than a two-third decline from last quarter.

This downfall is not solely attributed to the shrinking phone modem chip business. Much of it stems from a financial strategy termed ‘contra revenue.’

Unrelated to funding illicit activities, contra revenue signifies that Intel effectively pays tablet manufacturers to use its chips.

In 2014, Intel sold a chip to budget tablets, originally not meant for this segment. This resulted in the chip being pricier and more complex to incorporate into devices compared to its competitors. To counterbalance the extra cost of an Intel design, the company compensates producers for integrating their chips and even absorbs part of the tablet design costs.

While this business approach is atypical, it is not completely alien to the tech industry, particularly leveraged by wealthy companies in desperate situations.

Intel initially disclosed this strategy in a 2013 analyst meeting, but recent revenue reports have highlighted its impact, as Intel’s tablet volume began to escalate.

A paradox seems to emerge here, where Intel’s success in persuading device producers to implement their chips correlates directly to an increase in financial losses. If Intel achieves its goal of selling 40 million tablet processors this year, it will undoubtedly lead to massive losses in the coming quarters.

Intel has conceded that this tablet initiative could slash the company’s profit margin by 1.5 percentage points this year. Considering Intel’s sizable annual revenue, this could translate into expenses running into hundreds of millions of dollars.

Intel found itself in this complex situation because it initially designed the Bay Trail chip (currently sold to tablet manufacturers) for premium devices competing with iPads. However, opportunities emerged in lower-tier devices such as the Asus Memo Pad, priced around $150.

Intel aims to keep some of these tablet customers when it introduces more integrated chips the next year. These chips, designed for low-end tablets, will not require the additional expenditure Intel is currently incurring.

While Intel doesn’t forecast immediate profitability from its mobile division, it does envisage a reduction in losses. This was echoed by CFO Stacy Smith during a conference call with analysts.

“While the division won’t turn a profit right away, we anticipate significant improvements,” added Smith.

CEO Brian Krzanich reiterated that these investments are not permanent but critical to the company’s overall profitability. Further, he stated that they plan to gradually convert this into a profitable venture.

To fast-track profitability, Intel is venturing into something it has never done before by manufacturing Intel-architecture chips outside its own production units. These chips, known as SoFIA, incorporate a design from Infineon, but replace the ARM chip previously used by Infineon with an Intel processor core.

Intel eventually plans to bring chip production in-house, but for now, outsourcing aids rapid market entry.

In the meantime, Intel’s financial losses continue to soar.

Minor enhancements were applied in 2025 for readability.