By almost any measure, Intel’s (INTC) sixth-generation Core processor is a true leap forward. They run noticeably faster and use noticeably less power than their predecessors, and Intel made it pretty clear that the development of its sixth-gen Core units was in the name of reinvigorating the laptop and desktop as consumer choices. On that front, owners of Intel stock have something to be excited about .. at least superficially.
At the other end of the spectrum, however, those same owners of Intel stock must know that when all is said and done, the typical consumer neither knows, nor cares, how well their computer’s processor performs. They just need it to work reliably for a couple of years.
In other words, if the headlines suggesting Intel really thinks this sixth-generation computer processor is what has thus far been missing for the waning computer market, then INTC has got a rude awakening in store.
Meet Skylake
This latest family of processors from Intel is an extension of its existing Core line. Based on its so-called Skylake architecture, these processors are built on cutting-edge 14 nanometer manufacturing technology. It’s the second family of 14nm processors (2014’s Broadwell architecture was the first). So it’s probably safe to presume this second release of the technology learned a great deal from the first once it was in action.
And the performance shows: The premier processor based on Skylake that was put to the test early last month showed a typical processor speed of 4GHz, and a turbo CPU speed of 4.2GHz. High-end processors, widely available up until this point, were pushing it with an operating speed in the mid-3GHz range.
In layman’s terms, Intel says Skylake runs about 10% faster than most recently manufactured systems, and use about 20% less power.
And, perhaps just to give Intel stock something of a nudge sooner or later, Intel senior vice president Kirk Skaugen added to Intel’s press release:
“New 6th Gen Intel Core-based systems are more responsive than ever with enhanced performance, battery life and security. And they can enable amazing new PC experiences like logging into your computer with your face and having a personal assistant respond to your voice. The combination of 6th Gen Intel Core processors, Windows 10 and beautiful new systems from PC manufacturers make this the best time ever to buy a new computer.”
The technology is impressive to be sure, but the “best time ever to buy a new computer” message wreaks of desperation that should actually concern INTC investors.
Yeah, But…
Yes, Skylake is an impressive improvement on an already impressive family of processors. It’s also an advance most consumers don’t understand, perceive or care about. Ergo, it’s not an advance that’s going to suddenly shift growing sales of phablets and smartphones back to PCs and laptops.
Here’s the reality: The purchasing decisions of computers (or their alternatives) are largely driven by vanity and cost-consciousness.
Research done by Chetan Sharma back in 2013 determined the two biggest drivers to smartphone sales success were brand equity and price. Although the quality of a product was a factor, it wasn’t the defining one in the purchasing decision.
While Sharma’s research looked at the purchasing decisions for smartphones and tablets, it’s not a stretch to say consumers think along those lines when it comes to PCs.
Indeed, we already see this mirrored in what’s left of the PC market. Apple (AAPL) commands a premium because it’s perceived as the top brand in its market, while the value-oriented laptop and PC brands like Hewlett-Packard (HPQ) and Lenovo maintain their leading market share by maintaining their low prices.
In that most consumers don’t even understand the difference between Skylake and Broadwell architecture, and probably wouldn’t be willing to pay a premium for the difference anyway, Intel may be grasping at straws in believing the new Skylake processor is going to reposition the entire PC industry in consumers’ heads.
The bulk of consumers simply want to surf the web and play games or watch a video on their device. Phones and tablets are still cheaper, and decidedly more mobile.
Bottom Line for Intel Stock
In its defense, yes, the Skylake version of Intel’s Core family will be of interest to some consumers. Namely, hardcore gamers and performance junkies will see (and understand) the appeal, and be willing to pay the premium.
This is a small crowd though, which can’t single-handedly turn the PC industry around.
In other words, Intel stock investors who think this technological leap from Intel is a game changer only need to look back to the release of the fourth-generation processors released in 2013. Their technological leap forward was just as significant at the time as the sixth generation’s leap forward is (the jury’s still out on the fifth generation, but it doesn’t look encouraging), and the fourth-gen hardware did nothing to slow the demise of the PC industry.
That’s because the price, look and feel of the device are far more important than its guts. For most consumers, average guts will do just fine.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
