Intel to Launch TV Service

The world’s largest manufacturer of semiconductor products, Intel Corp. ( INTC - Analyst Report ) , is preparing to launch its cloud-based TV service and set-top box, as per a report from TechCrunch.

Reportedly, the company has been facing difficulty in securing licensing deals with content providers. In order to avoid licensing issues with content providers, the company plans to roll the product city-by-city rather than nationwide. Intel will likely reveal the set-top box at industry trade show CES on January 7.

Intel’s TV service is expected to include content from cable TV packages as well as Internet-based content like Netflix Inc.’s ( NFLX - Analyst Report ) streaming service.

The company’s intention to manufacture the set-top box (STB) was revealed in March 2012 through a Wall Street Journal report. Intel already makes chips for STBs but its decision to manufacture the entire box is the first of its kind. The company has not yet signed any deal with program providers.

The chipmaker’s foray into this segment may be considered a milestone. According to research firms IDC and Gartner, the PC industry was weak in 2012 and is expected to remain weak 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 efforts to move beyond the computer industry.

The success of the launch of a virtual cable operator remains unclear due to the many hurdles associated with it. 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.

Internet bandwidth could be another hurdle. The inability to guarantee enough bandwidth for high-quality video at all times of the day could divert the interest of the subscriber.

Further, the competition expected in the field will also be fierce, with most of the large technology companies vying for a share of the pie. These companies include Google Inc. ( GOOG - Analyst Report ) , Apple Inc. ( AAPL - Analyst Report ) and Microsoft Corp. ( MSFT - Analyst Report ) .

Currently, Intel shares carry a Zacks #3 Rank (Hold).