Intel Corporation Misses an Opportunity With Kaby Lake

By Markets Fool.com

Early next year, microprocessor giant Intel (NASDAQ: INTC) will release its seventh-generation Core processor family, formerly code-named Kaby Lake, for the desktop personal computer market -- a segment that Intel has said in the past generates more than $10 billion in revenue for the chipmaker.

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An Intel executive holding a mobile-oriented seventh generation Core processor. Image source: Intel.

For those new to the story, Kaby Lake is essentially last year's Skylake processor (sixth-generation Core, in marketing speak) implemented in a new revision of Intel's 14-nanometer process with some very mild tweaks to the design to improve the performance and power consumption of video playback.

For the low-power notebook market, Kaby Lake should deliver a nice boost in performance as a result of these enhancements. However, for the less-power-constrained desktop processor market -- particularly for more CPU-intensive tasks such as gaming -- these improvements (which will ultimately manifest themselves as slightly higher frequencies) are probably going to be underwhelming.

If this were the best that Intel could do given the circumstances, then the company could get a pass. But it wasn't -- not by a long shot.

Intel could have introduced higher-core-count models

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Next year, Intel is expected to release a processor family known as Coffee Lake for desktops. This, too, will be built on an enhanced 14-nanometer process (likely further enhanced from the 14-nanometer+ tech used to build the Kaby Lake processors), but with a couple of twists:

  1. Rather than recycle the same Skylake processor core again, Intel will be doing an implementation of its mildly enhanced version of Skylake, known as Cannon Lake, in that 14-nanometer process.
  2. Intel is expected to boost the processor core count in the top desktop Coffee Lake parts from four to six.

The move to the Cannon Lake architecture should yield a roughly 5% improvement in performance at similar frequencies, but the real big bang (at the very least, from a marketing/public perception perspective) should be in the increase in maximum core count from four to six.

Although it's nice that Intel is doing this with Coffee Lake, the company could have -- and should have -- introduced higher core counts with the imminent Kaby Lake processors. The additional cores at the top of the product stack would have allowed Intel to increase the core/thread counts across its desktop product stack, potentially spurring upgrade activity (particularly among gamers and PC enthusiasts).

Why didn't Intel build six core Kaby Lake processors?

Although I don't agree with Intel's decision to hold off on a six-core desktop/high-performance notebook processor until the first half of 2018, there must have been some rationale behind this decision.

An obvious explanation that comes to mind is simply cost structure. If Intel decided to, say, replace quad-core parts with hex-core parts, and dual-core parts with quad-core parts across the product stack, then the average silicon die size would go up across the board.

The increase in die size (which would drive an increase in product manufacturing costs) could lead to lower product margins if the company simply winds up selling more features/silicon at the same price points as before.

However, what Intel could have done is to introduced a hex-core part as a sort of premium desktop chip that sits on top of the fastest quad-core in the company's product stack. Intel could conceivably charge even more for such a part, not only alleviating the potential cost structure problem (the more-expensive-to-build chip would simply be more expensive), but potentially boosting its product average selling prices.

Another potential explanation, then, is that Intel simply didn't want to dedicate the engineering resources to building a separate hex-core chip for this market until recently. Given Intel's gargantuan research-and-development budget, this explanation might not seem likely.

However, since the previous general manager of Intel's client computing group outright admitted that Intel skipped out on doing an entire generation of desktop processors to save some research and development dollars (something that, to this day, blows my mind), anything is possible.

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Ashraf Eassa owns shares of Intel. The Motley Fool recommends Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.