The world’s largest manufacturer of semiconductor products, Intel Corp’s (INTC - Analyst Report) media group plans to hire 60 engineers experienced in cloud computing, user interface design and security to prepare itself for the launch of its Internet-based TV service and accompanying set-top box (STB).
Last month, Intel announced its plans to sell consumers a television set-top box that offers content from cable TV packages as well as Internet-based content from 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. Though Intel already makes chips for STBs,its decision to manufacture the entire box 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 -- making processors for PCs -- is seeingvery low demand as consumers are increasingly moving to tablets and hybrids.
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 Euro zone debt crisis and weak PC demand. In order to expand the company’s bottom line, Intel has increased efforts to move beyond the computer market.
However, its success as a virtual cable operator remains unclear due to several hurdles associated with this move. 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 competition will also be fierce as many media firms as well as technology companies such as Apple, Microsoft (MSFT - Analyst Report) and Google are vying for a share of the pie.
Currently, Intel shares carry a Zacks Rank #3 (Hold).