Is Intel Ready To Capture The Growth In The Drone Space?

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Last January, Intel (NYSE:INTC) marked its development in the drone market by its spectacular show of 100 unmanned aerial vehicles in the sky at the consumer electronics show (CES) that garnered the company a Guinness book of world record. Recently, the company set another world record by putting 500 drones controlled from a single PC into the sky. In this analysis, we discuss the potential growth opportunity and the challenge for Intel in the drone space. We also discuss how the company is readying itself to capture the growth potential in this new area.

How Is Intel Gearing Up To Capture The Drone Opportunity?

  • Recently, Intel recently acquired German commercial drone software startup  drone start-up MAVinci. This acquisition should aide Intel in gaining expertise in flight planning software algorithms and fixed-wing drone design capabilities.
  • Earlier this year, the company had acquired another drone maker, Ascending Technologies, which developed anti-collision systems for unmanned aerial vehicles (UAVs) using artificial intelligence (AI).
  • In the previous quarter, Intel acquired Movidius, a company that specializes in designing low-power chips capable of handling challenging vision-based tasks such as head tracking and gesture recognition in a severely power-constrained environment, making it extremely suitable for its use in drones.
  • Intel already has its own RealSense cameras that feature the groundbreaking depth-sensing technology, which allows devices to “see” the world in three dimensions.

Sizing up the market opportunity for Intel:

  • Aggressive investment by a large number of companies in drone research is likely to expand the utility of drones in wide-range of areas. This, in turn, can result in a strong surge in the market for drones, similar to what the smartphone market experienced in the last decade.
  • According to a report by Federal Aviation Administration (FAA), the number of unmanned aircraft systems (UAS) is likely to increase from 2.5 million in 2016 to 7 million in 2020. The same report also predicts the average sales price (ASP) of higher end UAS to be around $40,000 per unit and the ASP of lower end units to be around $2,500. If we assume that the overall ASP of the combined higher end and lower end drone devices will be around $10,000 and that a quarter of the revenue per device will be collected by Intel, then the market opportunity for the company can be around $17.5 billion. This is approximately 30% of the overall revenues that we project for Intel in the current fiscal year.
  • It is also worth noting that the vast amounts of data that will be generated with the use of drones will be processed in data centers. Thus, a surge in the usage of drones should have a strong positive impact on Intel’s data-center revenues, given that the company commands more than 90% of the data-center market.
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Source:Federal Aviation Administration

Qualcomm To Compete Head-On With Intel

  • As Qualcomm’s core business is threatened due to litigation issues, the company is betting big on adjacent high growth areas such as the drone market.
  • The company marked its entrance into the drone market space in September 2015 with the launch of Snapdragon Flight, which is powered by a Snapdragon 801 mobile chipset and is designed to support 4k capable camera and Qualcomm’s quick charge technology. Further, as many of the anticipated benefits of drones will require an uninterrupted connection, Qualcomm has partnered with AT&T to test drones on commercial 4G LTE networks.
  • The company seems to be advantageously positioned to capture this market as it can utilize its experience in making power efficient mobile phone chipsets in designing power efficient processors for drones too. The company is one among the few of the top-tier ARM licensees that hold both architectural and core licenses from ARM.

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