Was This Intel's Biggest Mistake?


There should be no doubts by now that Intel missed some key strategic opportunities in mobile computing. The chip giant has yet to make meaningful progress in one of the most powerful secular shifts to seize the industry in decades. The company still relies heavily on the PC market, which we all know isn't doing so hot right about now.

According to a profile in The Atlantic of just-retired CEO Paul Otellini, it didn't have to be this way. Intel silicon could have powered the original iPhone.

What could have been
Shortly after Apple transitioned its entire Mac lineup to Intel processors, ditching the PowerPC architecture, Intel had the opportunity to score the then-mysterious iPhone. At the time, no one could have predicted how disruptive Apple's new smartphone would be, and Otellini certainly didn't expect the unreleased device to go on and change the world.

Otellini recalled, "We ended up not winning it or passing on it, depending on how you want to view it. And the world would have been a lot different if we'd done it." The issue was that Apple had a certain price that it was willing to pay and "not a nickel more," but Intel expected its costs to be above that price. It was the type of hurdle that couldn't be overcome by volume, Otellini believed at the time. The retired exec added, "And in hindsight, the forecasted cost was wrong and the volume was 100x what anyone thought."

Intel is notoriously data-driven with how it approaches strategic decisions. Ad guru Ken Segall attests to that in his book Insanely Simple, having worked on marketing campaigns for a wide range of tech giants throughout his long career, including both Apple and Intel. Otellini acknowledged the weakness in this instance: "The lesson I took away from that was, while we like to speak with data around here, so many times in my career I've ended up making decisions with my gut, and I should have followed my gut. My gut told me to say yes."

Samsung would go on to win the processor spot in the first iPhone, with an ARM11 processor designed by ARM Holdings, in what would prove to be the seeds of a long-lasting frenemyship. Samsung would not only use what it learned to further its own smartphone capabilities, but still continues producing ARM-based processors for Apple to this day -- even after Apple switched to its own custom A-chip designs in 2010.

Passing on the iPhone may have been Intel's biggest mistake under Otellini's tenure.

When it comes to dominating markets, it doesn't get much better than Intel's position in the PC microprocessor arena. However, that market is maturing, and Intel finds itself in a precarious situation longer term if it doesn't find new avenues for growth. In this premium research report on Intel, a Motley Fool analyst runs through all of the key topics investors should understand about the chip giant. Click here now to learn more.

The article Was This Intel's Biggest Mistake? originally appeared on Fool.com.

Fool contributor Evan Niu, CFA, owns shares of Apple. The Motley Fool recommends Apple and Intel. The Motley Fool owns shares of Apple and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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