Intel Corporation Bets Big on Tiny PCs

Although consumers tend to equate the term "desktop" with a big, hulking tower filled with a bunch of large components, the definition of "desktop" has changed dramatically over the years. For example, PC chip vendor Intel often talks about how "all in one" PCs, such as the Apple iMac, have been displacing traditional desktop towers.

Another type of desktop PC that Intel has been bullish on for some time is the "Mini PC." The different kinds of "Mini PCs" are illustrated in the slide below:

Source: Intel

These PCs come in many different flavors, from relatively large "Mini ITX" models all the way down to compute sticks that can be plugged in via a USB port.

Why should investors care?According to Intel, the market for these so-called Mini PCs is expected to grow at a 20% compounded annual growth rate through 2018 to reach over 11 million units shipped annually. This, Intel says, is "one of the fastest growing segment[s] in desktops."

From an investment perspective, one could argue that these Mini form factors are simply cannibalizing traditional desktops. While this may be partially true, I think that since many of these smaller form factor PCs are coming in at very low price points, it could actually serve to expand the total demand for desktops.

That, given that Intel sells PC chips, is a potential positive for Intel.

Taking advantage of both Atom and CoreFor higher performance Mini PCs -- everything above the NUC shown in the slide above -- Intel looks to sell lower-power variants of its traditional Core processors. That's good news because these processors are very similar to the ones found in traditional towers, which should mean that in the case where a Mini PC "cannibalizes" a larger desktop tower, Intel doesn't see much, if any, of a negative revenue impact.

For devices such as the NUC, Intel uses lower-power, Atom-class chips for the lower-cost models and its higher power, higher performance Ultrabook class chips. Selling these devices is, from a CPU revenue perspective, similar to what Intel would get from a thin-and-light laptop sale.

Finally, for devices such as the "Mini Lake reference design" and the "compute stick" mentioned in the slide, the chips inside of these are probably more tablet class (i.e., cheaper than a typical PC processor) -- in other words, much cheaper.

The bad news is that the revenue per unit for these devices is lower than what Intel would see from, say, a NUC, but the good news is that Mini Lake/compute stick aren't likely to cannibalize a higher-end PC purchase.

Indeed, it's the really cheap devices with tablet-class chips that I could see most contributing to an expansion of the total addressable market for desktop PCs.

What's next for these devices?In its presentation at the Intel Developer Forum, the company talked about the future of these Mini PCs. The company was big on the idea of a "No Wire" Mini PC, as you can see in the slide below:

Source: Intel

It looks like the technology to build a "No Wire" Mini PC is pretty much here. The main change from current Mini PCs would be the integration of a battery to eliminate the power cord. However, these devices usually already feature Wi-Fi connectivity, support Intel's wireless display technology, and can support peripherals (keyboard, mouse, printer, etc.) via Bluetooth.

This all looks good, but is it enough?Given that the PC market itself isn't particularly healthy, with Intel forecasting a 5% drop in the total addressable market this year, PCs will need all the innovation possible to try to grab customers' attention.

I don't think Mini PCs themselves can single-handedly save the PC industry, but anything that Intel and its partners can do to try to get people to buy more PCs and to upgrade them at a faster pace should certainly be welcomed by Intel stockholders.

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Ashraf Eassa owns shares of Intel. The Motley Fool recommends Apple and Intel. The Motley Fool owns shares of Apple. 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.

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