Tech Blog: Will Intel crack the smartphone and tablet market?

In my previous theme, I quickly mention that ARM’s high valuation and Intel’s entry into the smartphone business, makes ARM a bad investment, even if it is a great company. This time I will take on the Goliath, aka Intel.

A little background on Intel…
Intel mainly creates processors for PCs and Macs. In the PC, laptop and server segments the company has a market share of around 76 percent, 82 percent and 95 percent respectively. Although the market share can vary depending on the production of newer chips which tends to run in 2-3 year cycles, the company is simply a monster. In fact it has close to a 16 percent market share of all semiconductors in the world, beating by far Samsung (9%) and Texas Instruments (4.5%). For a deeper description of the the Intel and ARM world you can read this previous article.

Currently Intel is riding its record high earnings from the production problems AMD faced in the past year which has delayed some of its new chips from hitting the market. Intel’s increase in the PC segment market share of 4.8 percent which was taken from AMD. Therefore Intel’s record earnings were partly affected by one time effects like the Thai flooding and AMD production problems. But Intel remains deeply focused on the traditional PC, laptop and server markets which apart from the server segment are growing slowly due to the competition from tablets and smaller, less powerful portables. 

The next catalyst for Intel…
Because PC sales have almost grinded to a halt from tablet competition, the company’s next move is to try to get a foothold in the very lucrative and fast growing tablet market. This market has grown by 75 percent in 2011 highlighting why the company is putting so much effort into creating smaller, less power hungry processors. Currently this market is dominated by ARM’s infrastructure with over a 95 percent market share and Intel is very hungry to get a bit of this.

Four million Intel powered Windows 8 tablets are expected to be rolled out in 2012 according to the Gartner research firm. These tablets are expected to start shipping by October, right on time for the Christmas. The estimate from Gartner is nothing but an educated guess, since nobody really knows how consumers will perceive the new Windows 8. However if we extrapolate this one quarter of sales to 2013, we can estimate that approximately 16 million Windows 8 intel powered tablets will sell in 2013.

The Atom chipsets that would be available in Windows 8 tablet would provide Intel with approximately USD50 of revenue per chipset. Therefore 16 million chips for tablets sold for USD50 fo revenue would equal USD800,000,000 in revenue. This would only account for a measly 2 percent of revenue for Intel and therefore would not be a significant earnings driver for 2012, but it would give the company a strong foot in the door to the large, expanding world of tablets, which is what investors and the company is looking for. This is also the reason why ARM might face a bit of pressure in future years as Intel tries to carve out a portion of its bread and butter market.

Additionally, Intel is also trying to break into the smartphone space, which will be more difficult to do. It has tried previously but failed as its chips were considered too complex and required too much power to be a viable option to compete with ARM devices. Early reviews for the new Intel smartphones running on Android have been very positive, even on par with ARM performance. The short-term problem for Intel is that ARM chips are further along in the typical processor-development cycle, so Intel is still catching up but has definitely made huge progress as many believed that Intel couldn’t create a chip that could rival ARM in the power to efficiency to size ratio. Currently the Intel powered phone is only availabe to Lava International, a small indian company with a quickly growing subscriber base. But good reviews and a growing acceptance of Intel powered smartphones might be enough to change manufacturers’ perceptions that Intel chips are only good for large and power hungry devices. Given that in 2011 close to 500 million smartphones (450 million of those were ARM smartphones) were sold and that this number is expected to grow, it leaves a wealth of potential for Intel.

So while the tablet and smartphone markets are currently untouched by Intel, do not discount the marketing and relationship power of this large company, as any kind of significant foothold would provide Intel with two brand new markets, and turn this slumbering giant into a growth company.

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