Tuesday, January 22, 2013

Its been a nice ride for Intel

For more than three decades, Intel has been riding the PC wave with above par earnings. Some of this wave is the result of superior Intel products but some is the result of increased demand for PCs for other reasons. But, as reported by Quentin Hardy in the NY Times, the era of PC dominance may be over and this is affecting Intel too.
At the after-hours price, Intel’s market capitalization dropped below that of Qualcomm — a smaller maker of chips, but a company that makes chips for smartphones and tablets. Even a year ago, this would have been unthinkable.

Unthinkable? This graph from ZDNet suggests otherwise.

What are the strategic implications?
“Longer term, Intel will move more aggressively into smartphones,” said Bobby Burleson, an analyst with Canaccord Genuity. “But everyone worries about their long-term gross margins.”

1 comment:

  1. I think Intel may actually be a value play. Yes, the market is moving towards phones and tablets, but there's still an expectation that next year's model should be much faster and better than this years.

    Intel is almost unique in the field, as they do both chip design or chip manufacturing. Most companies are one or the other. While the chip design is in turmoil, the chip manufacturing side has never been stronger.

    Intel currently manufactures chips on a 22 nm process, and they are scheduled to release 14 nm chips this fall. They are executing flawlessly.

    Their nearest competition is TSMC, who are just now ramping up their 28 nm process after being stuck for years at 32 nm, and don't expect to move to 20 nm until 2014 at the earliest. Globalfoundries, Samsung, UMC, and IBM are all playing catch-up, and without much to show for it. That's the primary reason why AMD processors, NVidia video cards, etc haven't gotten much faster over the past year.

    This gives Intel a *huge* advantage. Let's look at 2014. Comparing TSMC's 20 nm to Intel's 14 nm, Intel can make the same chip in (14/20)^2 ~= 0.5 of the cost.

    So what I expect is that Intel will start producing chips for other customers. Apple is a barroom brawl with Samsung. Apple could move their chip business to Intel, and (depending on how what trade-offs they prefer), either get the same CPU for half the cost, or use the extra space to make a CPU that's twice as fast. That gives them a huge leg up on the competition.

    So I wouldn't start shorting Intel just yet (though I don't mind if you do, it makes it easier to buy.)