Intel Corporation (INTC) Moving Into Your Living Room: Bad Decision?

Intel Corporation (NASDAQ:INTC) has long been a dominant force in the processor space, commanding tremendous market share to the detriment of competitors like Advanced Micro Devices, Inc. (NYSE:AMD). Now, after numerous rumors, the chip giant has made it clear it is looking to tackle an entirely different market: home entertainment.

In a move that seems unlikely, Intel has announced plans to launch an Internet TV service with an accompanying set-top box. The company intends to do this in a fashion similar to Netflix, Inc. (NASDAQ:NFLX), that is, without building its own infrastructure and instead relying on customer ISPs to carry programming. Before getting into the major hurdles of such a service, it’s worth discussing why the company would venture so far from its core competencies.

The biggest reason is the shift in the computing market. Companies like Dell Inc. (NASDAQ:DELL) and Hewlett-Packard Company (NYSE:HPQ) are in the midst of coping with changing dynamics, the former pursuing a highly publicized LBO. Even though Dell is going private, the company did manage to beat Wall Street expectations on what was likely its last earnings report as the Dell we know. The company beat on both the top and bottom line, reporting 40 cents a share in earnings on $14.3 billion in revenue compared to the consensus 39 cents a share on $14.12 billion in revenue. Despite seeing the need to make major changes, Dell and the market it serves are far from dead.

While PCs will not vanish any time soon, computing power is quickly becoming a commodity, forcing even the most dominant players in the market to change strategies. The obvious target is the mobile chip market, though it is dominated by ARM Holdings plc (ADR) (NASDAQ:ARMH) and its unique business structure. Intel has focused resources on the mobile market, but so far remains woefully behind. ARM has dominated the market for nearly 10 years at this point, commanding more than 90% of the market during the period.

Without a foothold in the smartphone market, Intel is looking for other markets, hence the decision to go for the living room. Intel isn’t the only major tech company to have designs on the home entertainment market with both Google Inc (NASDAQ:GOOG) and Apple Inc. (NASDAQ:AAPL) making overtures toward it. Apple CEO Tim Cook has frequently gone on record to point to Apple TV as an area of intense interest for the company.

Google has made several passes at the market, launching smart TVs and set-top boxes designed to extend its reach into the living room. The company was also rumored to be exploring a home audio system at one point, though nothing more has surfaced on that front. On the smart TV front Intel was an early provider of chips for Google’s designs, though it failed to gain much traction.

As it stands, with the exception of Microsoft Corporation (NASDAQ:MSFT), big tech has struggled in the living room. The software giant successfully transformed its Xbox game console into a full fledged media hub, placing it squarely ahead of its competitors. It seems these failures have inspired the chip giant to take a different route. Rather than pouring resources into a standalone device, they’re looking to combine it with a killer service customers will clamor for. In theory it sounds like a great idea, but there are some major hurdles to overcome.