"That painted a picture of, 'oh there's a market that's not a PC market'," McCarron said.
Intel started retooling the Atom processor -- designed originally for netbooks -- to fit into Internet-connected devices like mobile Internet devices (MIDs), which were small-screen computers with Web browsing capability. Intel developed some prototype phablet-like devices based on a chip called Menlow, which was announced in 2008, but MIDs never took off.
At the time, Intel viewed the MID as a smaller version of a PC that was Internet enabled. It couldn't perceive growth in the smartphone market because of mobile broadband connectivity issues and data limits at the time.
PCs are "your expertise, that's your worldview, and that kept them from seeing the phone as a client," McCarron said.
The next Intel smartphone chip called Moorestown was announced in 2010 but was too power hungry for smartphones. The first Intel-based smartphone was Lava's Xolo X900, which was released in April 2012 in India, followed by handsets from Orange and Lenovo. Those handsets had a new Atom processor code-named Medfield.
While Intel struggled to make a competitive mobile processor, its failure in mobile software also burned the company. Intel in 2007 started working on Linux-based Moblin, which was merged with Nokia's Maemo into a new OS called Meego in 2010. The OS was then merged with LiMo into what is nowTizen. Intel ultimately warmed up to Android in 2011, but it was too late.
Intel was trying to force its OS down customers' throats as Apple and Google were taking over the market, said Jim McGregor, principal analyst at Tirias Research.
"They had a chance to jump ship to go with Android, but they didn't do it," McGregor said.
Intel also spent billions retooling chip manufacturing with mobile in mind, with the focus being on low-power chips instead of performance. The goal was to catch up with ARM in power efficiency by using its manufacturing advantage.
The investments didn't advance Intel in the mobile market but have helped bring longer battery life to laptops and tablets.
Another mistake was the high priority placed in the now-declining tablet market. Intel CEO Brian Krzanich, who replaced Otellini, set a goal to ship 40 million tablet chips by the end of 2014 using heavy subsidies on Atom chips. The company shipped 46 million chips that year, but the effort hurt Intel's profitability, and Krzanich decided not to repeat that strategy with smartphones.
A move away from smartphone chips gives Intel a clean slate to envision an alternative, and more importantly, profitable mobile future. Intel's smartphone chips had thin margins, and now the company will focus on expensive server chips that will deliver Web services to mobile devices. Intel will also continue developing 5G modems.
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