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The world’s largest manufacturer of semiconductor products, Intel Corp. (INTC - Analyst Report) recently announced its plans to launch an Internet-based TV service and an accompanying set-top box.

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 Inc.’s (NFLX - Analyst Report) streaming service. The video service will also be available on mobile devices such as Apple Inc.’s (AAPL - Analyst Report) iPad.

The company’s intention to manufacture the set-top box (STB) was revealed in Mar 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.

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 very slow demand as PC sales are declining and consumers are moving to tablets and smartphones.

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.

The chipmaker’s foray into this segment may be considered a milestone. But the competition expected in the field will also be fierce as many media firms as well as technology companies such as Apple, Microsoft Corp. (MSFT - Analyst Report) and Google Inc. are vying for a share of the pie.

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

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