Intel Risks Falling Behind in Mobile
Erick is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Intel (NASDAQ: INTC) faces decreasing revenues and earnings from PC sales. Mobile devices are gaining ground as consumers move to tablets and smartphones. These mobile devices are predominantly powered by chips from competitors like ARM Holdings (NASDAQ: ARMH) or Qualcomm (NASDAQ: QCOM). ARM and Qualcomm design the chips based on their architectures while the silicon is manufactured by others. ARM and Qualcomm are more than happy to collect royalties and revenues from the device manufacturers of the Android and iOS devices.
In the case of Apple (NASDAQ: AAPL) they design a custom chip for their iPads and iPhones. The goal is to get faster and faster speeds in a smaller, lighter package with less power consumption. The less power the chips consume, the smaller and lighter the device can be. Something that Apple loves to tout in their new iPhone 5 and iPad Mini models.
Intel needs to break in into this rapidly growing market. Right now they are looking to power the higher-end Microsoft (NASDAQ: MSFT) Surface tablets, but it is having trouble getting the yields they need with their Atom processors. The Surface is aimed at the enterprise customer. Businesses like to run Office applications and Outlook, but I think the real growth is not going to come here. the real growth is to come as cheaper smartphones and tablets powered by Android or iOS take over the emerging markets. These devices are mostly coming with ARM chips.
Intel's strategy has to be to aim for that rapidly growing market in order to replace lost sales from PCs. Last quarter their revenues slightly fell by about 2% or so, but this will accelerate as we move forward. An example of this is the way physicians have moved to electronic records and apps to replace traditional books used in the practice of medicine. It is much more convenient to carry a small tablet such as Apple's iPad mini or a Google Nexus in your coat pocket than a number of books and to lug around a laptop in order to see patients.
Intel's very survival in the long term depends on getting their power consumption down and more silicon into an ever smaller package. The next six months will determine whether Intel remains a genuine value story or if it goes into a death spiral in the same way as its smaller rival AMD. Shorting PC manufacturers such as Dell that lack a viable mobile strategy has proven very profitable, but will Intel's fortunes remain hitched to those manufacturers or will it evolve into a company that can gain market share and revenues in the mobile market. Stay tuned, the next six months should provide a clearer picture.
Fool blogger Erick M. Santos, M.D., Ph.D. is long INTC, AAPL, ARMH, QCOM and GOOG. He has no shares of AMD or DELL or MSFT. He receives no payments from Intel except for that juicy > 4% dividend every quarter. The Motley Fool owns shares of Apple, Intel, Microsoft, and Qualcomm. Motley Fool newsletter services recommend Apple, ARM Holdings, 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.