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The world’s largest manufacturer of semiconductor products, Intel Corp. (INTC - Analyst Report) expects to start selling its set-top box, offering an Internet-based TV service later this year.

The company said that Intel’s TV service is expected to include content from cable TV packages as well as Internet-based content like Netflix’s streaming service.

Though Intel is yet to secure deals with major content providers, such as Time Warner Inc. (TWX - Analyst Report), NBC Universal and Viacom, Inc. (VIAB - Analyst Report), it remains confident about obtaining them.

The company announced its decision to manufacture set-top boxes (STBs) in Mar 2012. Intel already makes chips for STBs but its decision to manufacture the entire box and provide Internet-based TV service is the first of its kind.

Intel is best known as a chipmaker and remains well positioned in the server segment. However, its main business, that of making processors for PCs, is witnessing lower demand due to declining PC sales.

According to research firms IDC and Gartner, the PC industry was weak in 2012 and is expected to remain so in 2013 due to the softness in the memory market (specifically in DRAM), the ongoing Eurozone debt crisis and weak PC demand. In order to expand the company’s bottom line, Intel has increased its efforts to move beyond the computer industry.

The chipmaker’s foray into this segment may be considered a milestone. But the competition will also be fierce. Intel will directly compete with pay-TV providers like Time Warner Cable Inc. (TWC - Analyst Report) and DIRECTV (DTV), which already have a huge customer base.

Also, the high cost of TV programming channels remains the primary problem. Incumbent cable, satellite and telecommunications companies already pay nearly $38 billion per year to license TV channels. Intel may also have to bear the brunt of higher costs.

Currently, Intel shares carry a Zacks Rank #2 (Buy).

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