How Intel Could Gain by Quitting Wearables

Is Intel (INTC) quitting wearables?

TechCrunch has said so. On Nov. 18, the tech website reported that the giant chipmaker is set to make big job cuts at its New Devices Group and may exit the wearable space altogether.

Intel denied that, saying in a statement that it "is in no way stepping back from the wearables business," though it was silent on the question of layoffs.

The company's history in wearables is short but turbulent. In 2014, it bought Basis Science, maker of the Peak fitness tracker, for a rumored $100 million. A year later, it snapped up Recon Instruments, which develops heads-up displays for athletes, for around $175 million.

These seem like smart moves, given the growth tear the wearable market's been on. According to recent data from Scalar Market Research, the market will be worth $71.2 billion in 2021, up 138% from 2016.

But the Peak couldn't make a dent in that market, and in August, Intel recalled the device -- and halted sales altogether -- after reports that it was overheating. It seemed like an overreaction, given that the problem only affected 0.2% of users.

A look at the daunting landscape the Peak was facing, however, puts its, er, flameout in a different light.

According to IT research firm IDC, wearable devices from Fitbit led the market in the second quarter, with a 25.4% share. Xiaomi was next with 14%, then Apple with 7.0%, although that figure is most likely higher now since it has released the Apple Watch 2.0 and slashed the prices on earlier models.

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Other players include Garmin, with a 6.9% market share. Keep an eye on Garmin, because its unit shipments grew about 100% year over year.

But Intel remains an attractive investment despite the setback. That's because it lumps wearables in the "All other" category when it reports earnings. And in the third quarter, "All other" accounted for just 0.3% of the company's top line.

So forget wearables. Intel will sink or swim based on the performance of divisions such as Client Computing, including its PC and mobile businesses (56% of third-quarter revenue), Data Center (28%) and Internet of Things (4%).

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