Inside Intel’s Lingering Questions
Peter is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There are a number of things that a quarter of sales cannot change. For chip maker Intel (NASDAQ: INTC), the hole in their mobile strategy is one that I don’t think anyone expected them to fill in the last three months. While Ivy Bridge has a number of big design wins under its belt, most notably the entire refresh on Apple’s (NASDAQ: AAPL) line of laptops, the real growth path in the near term is in the tablet/smartphone arena, and Intel’s Medfield line of Atom processors is just not competitive in the current round of products.
The good news is that they really don't have to be. Taiwanese rumor mill Digitimes, along with other sources, has pointed towards a minor renaissance in notebook orders from ODMs for the second half of 2012 as people come to realize that, while extremely cool and useful for a number of things, tablets are not ready for prime time as work machines. The transition to the cloud for all of our storage and applications is still ongoing and there is still a need for such passé things like keyboards and mice. So, while ARM Holdings (NASDAQ: ARMH) and their licensees will continue to dominate that space for the foreseeable future there will still be room for Intel to play catch up on the power usage front now that they’ve pushed Moore’s Law about as far as anyone practically wants them to.
It doesn’t hurt Intel’s position that rival AMD (NYSE: AMD) cannot seem to ever ship a new chip on time, no matter who’s building it for them. The day that happens, if it happens, is the day Intel will have serious competition again at the desktop/large mobile device level.
The challenge to Intel’s Ultrabook platform will not be forthcoming from AMD’s low-power Trinity SKUs until they can ship them in greater numbers at significant cost savings and on a less stringent platform (i.e. slightly thicker, slightly heavier than an Ultrabook). So, as we approach the back-to-school and holiday seasons in the U.S., Intel’s position in the notebook market looks unchallenged. Lower end Ultrabooks, at the $799 price point and below, will not be challenged by AMD simply because AMD doesn’t have enough design wins in the right products to make the A10-4655 a serious competitor.
Now that Microsoft (NASDAQ: MSFT) has announced the release date for Windows 8, October 26th, we will finally know if their plan to unite the mobile, desktop and game console experiences into one seamless Apple competitor will fly in the market place. If it does, then Intel, along with AMD, will benefit greatly.
But, it is the future of both tablets and smartphones, where Intel has a massive lead in die size over its competition, that it will need to leverage to play catch up in the mobile market. Since that segment comes with so much turnover (thanks to Intel’s own engineers creating CPUs that are far faster than we need for everyday tasks), both the revenue opportunity on the table and the ability to play catch up is so much higher than it is in traditional GPU and CPU product cycles. This is what is still plaguing AMD and why they have begun integrating a number of ARMs functionally into their future APU roadmap.
For Intel, the biggest concern is the inability of the Chinese government to reflate their slowing economy, as Asia-Pacific now accounts for a record 58% of their revenues. The deterioration in North America should be frightening to them, as year over year revenue was down 1% while even European sales were up 5%, right in line with Asia-Pacific.
Intel’s gross margins continue to impress at 64% but that will not last unless they successfully pull market share away from one of the ARM licensees with Clover Field in Q4 or finally put AMD out of its misery to grab their share of the PC market. The former seems likely. If Windows 8 fails to spark a revolution on the PC or, more disastrously, an open revolt against Redmond, then 2013 shapes up to be a very interesting battle as Qualcoom, Samsung and others wait to pounce on the ashes of Wintel.
PeterPham8 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Intel, and Microsoft. 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.