Why Intel's CEO will be downplaying the company's core business today

Intel Corp. CEO Brian Krzanich
Ethan Miller | Getty Images
Intel Corp. CEO Brian Krzanich

Intel cannot afford to miss out on the next wave of tech innovation, as it did with mobile.

If you believe Facebook's Mark Zuckerberg and Apple's Tim Cook, then virtual reality, artificial intelligence and the internet of things will underpin the next generation of computing platforms, and this time Intel CEO Brian Krzanich wants to be right there with them.

It is on these new growth opportunities, and not the company's flagging legacy PC business or mobile misses, that Krzanich is expected to focus his keynote address at Intel's Developer Forum on Tuesday at 9 a.m. Pacific. Six thousand developers will attend the event, now in its 20th year, at San Francisco's Moscone Center.

Intel rode the PC revolution over the past several decades to become the world's biggest semiconductor company, but the shrinking market — which makes up half of its business — is now weighing it down.

The company's stock has traded roughly flat since January, as the shares of rival Qualcomm, whose fortunes are closely tied to mobile, have surged almost 25 percent year to date. (The Nasdaq has gained around 5 percent since the start of the year.)

As in prior years, the focus at the conference will be getting the message out there that Intel has a lot of opportunities beyond its existing business, said MKM Partners analyst Ian Ing.

"They are trying to position Intel as enabling technology that can help transform individual lives, as well as enterprise technologies," said Ing.

Like other aging tech giants, Intel is banking on the shift to cloud computing and growth of internet companies like Facebook and Amazon to help drive future growth. The Santa Clara, California-based company already has almost all of the market for server microprocessors, a segment that increased quarterly revenue 5 percent year over year, according to Intel's most recent earnings report.

"Growth in new areas of the data center can be the key driver of growth," said Canaccord Genuity analyst Matt Ramsay.

But as growth in smartphone sales slows, companies like Qualcomm and Samsung are eyeing that business as well and Intel cannot afford to rest on its laurels.

The internet of things promises to connect a whole new set of devices to the cloud and Intel wants to make so-called end-to-end solutions — from the sensors on the ground to servers in the cloud — to collect and analyze all that data. Krzanich will highlight the use of Intel's sensors in drones and autonomous cars and tout events for developers to get hands-on experience with the company's newest technology.

For example, drone pilots will demonstrate how computer vision brings obstacle avoidance, autonomous capabilities and "follow me" features to the Yuneec Typhoon H drone, the first drone to be powered by Intel RealSense camera technology. Attendees will be able to run along with the drone as it successfully navigates typical park obstacles.

The company recently announced a new partnership with BMW and MobilEye and Krzanich has said it expects the average autonomous car to generate 40 gigabytes of data a minute in 2020.

"Their play on machine learning — deep learning — is to process all the collection points and be able to take all that data and process it on the servers through analytics," said Ing.

Last week, the company announced plans to acquire Nervana Systems, to advance its AI portfolio and Krzanich is expected to share updates about the foundation Intel is building for artificial intelligence.

"Instead of programming an Intel chip with very specific code, you teach a computer to act like a human being," said Ing.

Virtual reality and augmented reality will also feature in Krzanich's keynote and demos. The company may unveil an augmented reality headset, also leveraging its RealSense 3-D camera technology. That said, VR and AR technology is likely to continue to make up a very small portion of Intel's business over the near term, said Ing.

"It's a check box to them, it's not like a tremendous growth driver," said Ing.

Don't expect to hear too much at IDF about Intel's wearables strategy, an area where it competes for business most directly with ARM. Though this is an area where Krzanich had tried to aggressively win — buying smartwatch maker Basis Peak and developing chip technology to be embedded in wearable devices — the company has suffered as the adoption of wearable devices has been slow. It recently announced it would recall all Basis Peak smartwatches due to an overheating issue.

Analysts will be watching closely for any hints on how its widely anticipated new partnership with Apple will impact the business. Intel is expected to win some share of Apple's modem chip purchases for the iPhone 7 and any updates shared by senior management will be closely regarded. Neither Intel nor Apple have confirmed the partnership, but Qualcomm's sales projections suggest it expects to lose some of this business.

"Expect increased confidence in the wireless modem business with the upcoming partial win in the iPhone 7," said Ramsay.

This mobile foothold is "tremendously helpful" to Intel, said Ing. The question, going forward, is whether Intel can leverage this expected mobile foothold in the iPhone 7 modem into more business. Silicon integration is very important for smartphone customers and Qualcomm is not giving Apple the integration the company wants, he said.

"Apple is probably the most important customer to serve in smartphones," he said. "They could become a really good supplier to Apple if they do the right things."