Watching Intel's Transformation
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As mobile products like the tablet and smartphone become more and more popular and the PC slowly takes a back seat in popularity and sales, it is interesting to watch companies like Intel (NASDAQ: INTC). A majority of the company’s business in the past has come from semiconductors for personal computers. But as one industry slows and another picks up, it is interesting watching Intel’s transformation into the mobile-market take place.
INTL’s Move into the Mobile Application Market
Even though Intel dominates the (CPUs) market with close to an 80 percent share of the world's PC market, it knows that future growth for the company will be in mobile application processors. Analysts see AP’s rising around 40 percent annually through 2014, but PC processors growing in single digits. Clearly AP’s are the future market, and it is projected that by 2015 the entire global AP market will be about $33 billion while the CPU market will top out at $34 billion. For this reason, companies like Samsung, Qualcomm (NASDAQ: QCOM), Texas Instruments, and even ARM Holdings (NASDAQ: ARMH) should see growth naturally. This is where Intel is headed and the competition it must face head on.
Is Samsung its Greatest Rival?
Like all profitable companies that tend to be around with advancing technology, Samsung knows where the future is. Betting on the smartphone and tablet devices as catalysts for semiconductor growth, it is sinking $2 billion into a new logic chip plant in South Korea.
Everything between CPU and AP is Blurring
Intel is moving into the mobile chip market and ARM-based AP’s continue to improve toward the CPU level, boundaries are blurring. Samsung already has application processors for iPad, iPhone and its own Galaxy products. Lava International, a smaller Indian company launched its own smartphone recently with Intel’s Medfield processor which introduces Intel to the mobile market. Can it rival mainstream processors like Snapdragon from Qualcomm or A5 from Apple (NASDAQ: AAPL)?
While Intel moves into the mobile chip market, Samsung is testing the CPU market. There will be direct competition between two strong bases with differing qualities. Samsung makes ARM-based application processors that are very power efficient while Intel’s boast is high performance with the need to increase efficiency. If this isn't enough ingredients in the new recipe of semiconductors—take a look at the Microsoft (NASDAQ: MSFT) and ARM alliance. As the new Microsoft tablet comes out, ARM’s mobile chips are more adapted to running Windows 8. Looking to take on Apple with the alliance, it is a direct conflict with the old Microsoft-Intel CPU allegiance. So here comes Samsung again. Windows 8 may be a catalyst for growth of the mobile processing market. As the AP market advances, it will catch up in efficiency and power to the CPU market, Intel’s stomping grounds. Its all becoming a blur!
So Intel is betting its technological advantage in the CPU semiconductor market will continue to give it an advantage while it focuses on factory investments in the mobile chip market for the future. It is increasing capital spending by about 17 percent this year, and is building a $5 billion plant in Chandler, Arizona, which will manufacture chips at just 15 nanometers - that's the gap between the transistors, and is several thousand times thinner than a human hair. The nano race is on! Samsung will be developing 20nm and 14nm technology in its new plants. The ARM camp should have 20-22nm by 2013 and Intel already uses a 22nm in its Ivy Bridge CPU.
As Intel invades a new field that others dominate, the question arises if it can pose a threat to the dominant players in that camp already. ARM has an advantage in lower power consumption and production costs presently. But Intel is also courting the government for tax breaks to lower the cost of production here in the states. Time will tell as this transformation takes place who will remain the big players as the CPU and AP worlds mesh together.
johnmylant has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Intel, Microsoft, and Qualcomm. Motley Fool newsletter services recommend Apple, Intel, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.