While Intel (NASDAQ:INTC) has been the world’s dominant PC Microprocessor maker for over two decades, it has had difficulty penetrating newer processor markets for tablets and smartphones, in which Qualcomm (NASDAQ:QCOM) and Samsung (PINK:SSNLF, including Apple) are dominant. As a result, the company’s growth has declined significantly in recent quarters, given the weakened state and uncertain trajectory of the PC industry (perhaps now bottoming).
Intel is no longer dependent solely on PCs—it derived just 62% of its revenue from the PC market in the most recent quarter. It has long had a very strong and growing position in the market for Server Microprocessors (the Data Center Group). And its Atom Microprocessors (the Other Intel Architecture Group) have had considerable traction in the markets for Embedded Systems and, for a time anyway, Netbooks. Yet its efforts to enter the Handset advanced logic market with its Atom processor have been thwarted, even as the emergence of an Adroid/iOS near duopoly in Smartphones has driven even once dominant players (such as TI) from the market. Yet leveraging its leadership in process technology and a move to SOC-based designs, the company perseveres with some success.
Intel marked its most recent thrust in the mobile market with the acquisition in 2011 of Infineon’s Wireless Solutions Business. This gave it a near top ranking in the market for cellular baseband processors, even as Qualcomm and Samsung attained their dominance through Apple and Android. With considerable investment and effort, it has built on this and its Atom-based SOCs now power around 12 smartphones and 15 tablets at present, whereas leading player ARM Holdings accounts for close to 90% of the market.  The company plans to significantly increase its investment in chips for the fast-growing tablet market and lower investment in its core PC processor business.
Intel continues to focus on producing more energy efficient chips and adding features for connectivity and security. Indeed, that was the topic of the company’s Analyst Day yesterday, through which management provided a detailed update. We are still reviewing the voluminous material but note its more disciplined investment in targeted markets (i.e. focusing most where it has traction) should yield greater success. Despite rising competition, we believe that an expanding mobile portfolio will help Intel increase its penetration in the smartphone and tablet market. Listed below are certain points reiterating our belief in the same.
Our current price of $29 for Intel is at a 10% premium to the current market price.
New Chips To Spur Future Demand
Intel’s earlier Atom SoC based on Clover Trail and Clover Trail+ platforms were present in a relatively small number of tablets. Backed by some recent high profile design wins such as the Samsung Galaxy Tab, the company presently accounts for 4%-5% of the global tablet market. 
Intel intends to quadruple the number of tablets, ranging from below $100 to $400, with its chips to more than 40 million next year.  It believes that its upcoming products and platforms can fuel industry demand in the future.
- Intel recently introduced its Silvermont chip, which offer three times better performance or similar level of performance using five times less power compared to the Atom chips. Supporting both the Windows as well as the Android platforms, Intel believes that Silvermont is one of the biggest chip architecture advances in its history. Its first quad-core Atom SoC (Bay Trail) for tablets and the Merrifield platform for smartphones will be based on the new architecture. Intel intends to extend its product line across screen sizes and price points in tablets. Process migrations to finer geometries virtually assure significant advances in power efficiency ahead of the competition.
- Intel aims to boost its mobile chip graphic performance by fifteen times and its CPU performance by five times by 2016. At its analyst conference, it introduced two upcoming mobile chips (Cherry Trail & Boxton) from its Atom-based SOC line which will be made using the 14 nm process. Expected to ship at the end of 2014, Cherry Trail is a high performance mobile chip which feature Intel’s next generation graphics, as well.
- Cherry Trail will be succeeded by a faster and more power-efficient chip, code-named Broxton, which will appear in devices from 2015 onward. Broxton has a different chip design compared to its predecessors and is built into what Intel executives called a “chassis” to which other components can be easily connected.
LTE Capability To Expand Footprint In The Smartphone Market
Intel’s multimode, multiband 4G LTE solution (XMM 7160) started shipping commercially at the end of last month. Prior to that the company was only shipping the single-mode 4G LTE data solution. XMM 7160 is one of the industry’s smallest and lowest-power multimode-multiband LTE solutions that supports smartphones, tablets and ultrabooks. It provides seamless connectivity, supports 15 LTE bands simultaneously and is voice-over LTE (VoLTE) capable. Intel’s XMM 7160 is featured in the LTE version of the Samsumg Galaxy Tab, which is now available in Asia and Europe.
4G/LTE is the future of wireless connectivity for mobile devices, especially smartphones, and a dominance in the production of LTE chips has enabled Qualcomm to lead the smartphone market so far. Of the various technologies that are driving the market currently, LTE is seeing the strongest growth as carriers around the world increasingly shift to the new standard for wireless communication. Competing firm Nvidia estimates the LTE market to more than double by 2016. 
Despite stiff competition in the mobile computing space, we believe that LTE integration will enable Intel to make a deeper foray in the smartphone market.
Expanding The Contract Manufacturing Business
At its analyst conference this week, Intel’s CEO Brian Krzanich announced that he plans to expand the company’s Foundry (i.e., contract manufacturing) business by allowing more chip designers to tap into the world’s most advanced process technology. The company is way ahead of competition in developing the 14 nm and 10 nm manufacturing technologies.
The Foundry business currently serves small vendors and does not contribute much to Intel’s revenue. This will change with the additional of Altera’s FPGAs at 14 nm. The addition of a high-volume designer of mobile processors could change things dramatically. The company expressed greater openness to Arm-based design at this week’s meeting. And many observers wonder if and when Apple will want to leverage Intel’s leadership, which would produce significant change. Even absent this, we believe the move can accelerate Intel’s growth in mobile computing processors, albeit as it lags behind leading smartphone and tablet chipmakers.Notes:
- Intel’s Krzanich pledges stronger mobile push in his first speech as CEO, Computer World, May 16, 2013 [↩]
- Intel’s Management Presents at Citi 2013 Global Technology Conference (Transcript), Seeking Alpha, September 4, 2013 [↩]
- Intel CEO says contract manufacturing business to expand, WTAQ, November 21, 2013 [↩]
- Nvidia’s CEO Hosts Annual Investor Day Conference, Seeking Alpha, April 11, 2013 [↩]