Intel's CEO says its costly tablet chip strategy has paid off

By Noel Randewich

SAN FRANCISCO (Reuters) - Intel Corp's plan this year to pay manufacturers to use its processors to make tablets was boosting the chipmaker's market share, Chief Executive Officer Brian Krzanich said on Tuesday, adding that he hoped to avoid such a costly strategy with smartphones.

After falling behind rival chipmakers in mobile in recent years, Krzanich set a goal for Intel's chips to be used in 40 million tablets in 2014, up from 10 million the previous year.

To reach it, Intel is paying manufacturers some of the initial engineering cost of developing tablets using its chips, hoping those companies will continue to use them for future devices.

The vast majority of tablets are made with processors based on rival technology from Britain's ARM Holdings Plc .

"We've made good progress getting into tablets," Krzanich told reporters ahead of the annual Intel Developer Forum in San Francisco. "We've gone from nothing to something where I consider us a real tablet manufacturer."

Investors have pushed shares of Intel to decade highs, partly on bets that the global slump in personal computer demand that began with Apple Inc's introduction of the iPad four years ago is hitting bottom.

Shares of Intel have surged about 35 percent so far this year, far more than the Standard & Poor's 500's increase of 8 percent.

Intel would not say how much it was spending to coax tablet makers into using its chips. But reflecting an ongoing struggle to break into smartphones and tablets, the company's mobile and communications group's second-quarter revenue fell 83 percent to $51 million, and the unit had an operating loss of $1.12 billion.

Krzanich said he hoped to avoid using costly subsidies when he sets a new goal for smartphone chip shipments for 2015.

Intel's upcoming Sofia smartphone chip includes a 3G version for low-cost devices in developing countries likeChina as well as a version with 4G for the United States.

"It's a product built for the right price point," Krzanich said.

At Tuesday's event, Intel was expected to highlight its determination to become a player in a growing wave of wearable computing gadgets like smart watches and fitness trackers.

Intel has been working with design company Opening Ceremony to launch a fashion bracelet with semiprecious gems, communications features and wireless charging.

In March, Intel bought fitness bracelet maker Basis Science. Last week it announced plans to work with fashion accessory retailer Fossil Group to develop more wearable computing devices.

(Reporting by Noel Randewich; Editing by Lisa Von Ahn)