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One of the reasons for Intel (NASDAQ:INTC) having such a rough year in 2012 was the prevailing myth that Intel could not catch up in mobile. The stock price peaked at $29.18 on May 2, 2012 and slowly fell to $19.36 on November 21, 2012. This article is going to focus on the myth that Intel doesn't have an LTE solution and that it is required for the smartphone market. I disagree, LTE is not required for the emerging markets yet and these markets are where the greatest growth is located. If you want to build chipsets for high-end smartphones in developed countries then a company is required to have LTE capability. When Intel launched its Atom processor it focused on the low-end smartphones in the emerging markets segment. I would assume this is because Intel had not developed a baseband chip to compete in the other segments but Intel's marketing department does a lovely job of pointing out where the growth is. With that said, if Intel wants to be a major player in the smartphone market, it must have a chipset solution for each of the segments.

Intel competes against ARM Holdings (NASDAQ:ARMH) for the design of mobile solutions and ARM is currently the dominate design used in smartphones. Qualcomm (NASDAQ:QCOM) and Nvidia (NASDAQ:NVDA) are the two companies that Intel is competing with for design wins in smartphone models with the Tegra and Snapdragon processors. There are more competitors in this market but these two companies are the major competitors. Of course, Apple (NASDAQ:AAPL) builds smartphones using chip designs from ARM and would be a major design win for Intel to wrestle the iPhone away from ARM designed chips.

Intel has been working on an LTE solution and has allocated additional resources to the endeavor by purchasing the wireless unit of Infineon and 1600 patents from InterDigital. The culmination of this effort is the release of the Intel XMM 7160, which according to the Intel website, "The Intel XMM 7160 slim modem platform combines Intel X-GOLD 716 Digital and analog baseband featuring an integrated power management unit with the Intel SMARTi 4G transceiver for 2G/3G/LTE and the Intel Comneon Release 9 protocol stack."

I found an article about the Signals Research Group's New LTE chipset performance quoted below:

Using a lab-based testing approach on the Spirent 8100 LTE test solution, SRG collected and analyzed the data performance of eight LTE baseband chipsets from Altair Semiconductor, GCT, INTC, NVDA, QCOMM, Renesas Mobile, Samsung Electronics, and Sequans Communications. Three chipsets distinguished themselves from their peers with Intel's pre-commercial solution capturing top honors.

Signals Research Group's New LTE Chipset Benchmark Study Highlights Wide Variance in Performance 3/14/2013

This is just a test but it bodes well for Intel starting to break into the high-end segment of the market, and certainly the mid-range segment, and can finally come home to deliver solutions in the US. This test does state that Intel's LTE solution, even when compared to QCOMM and NVDA, captures top honors.

The undisputed leader for the baseband chipset is Qualcomm with a massive market share in the smartphone market. Qualcomm is the competitor to strive to beat if Intel is to become a dominate player in the high-end smartphone market. The Qualcomm Gobi MDM9*25 chips have modems with support for 4G LTE and 4G LTE Advanced. When we compare the Qualcomm modem to the Intel modem, we see that Intel has caught up to Qualcomm in the LTE offering with both advertising peak speeds of 100Mbps and multi-band LTE. Qualcomm has released the 3rd generation LTE chipset that support the LTE Advanced mobile broadband standard which allows peak speeds of 150Mbps. Qualcomm also integrates the LTE modem circuitry with the processor which Intel will not offer until possibly next year.

Intel's LTE solution is advertised as one of the smallest and lowest power solutions. This still puts Intel behind Qualcomm for the leading edge of modem capabilities but Intel certainly has "caught up" with the competition and can compete in the mid-range smartphone market. This statement is proven with the test from Signal's Research Group granting Intel top honors in LTE performance. While QCOM has delivered a modem that supports LTE Advanced, Intel still captures top honors. I am not saying Intel will overtake QCOM this year but the myth that Intel cannot compete should be dispelled by now. Interesting enough, an analyst for Raymond James recently raised his rating for Qualcomm without raising the sales estimates stating that competition from Intel and Broadcom will weaken its growth. 2014 marks the year Intel is scheduled to unveil an integrated solution and would need to support LTE Advanced if it wants to grab market share in the high-end segment of the smartphone market.

So the real question is how does having this LTE capability help drive revenue growth for Intel. Simply put, it opens more of the market to Intel to compete in. Intel having "the smallest and lowest power solutions" for LTE that earned top honors from the Signal's Research Group will power sales in the mid-range smartphone segment. In 2013, I expect Intel to sell chipsets for up to 60 million units due to its presence in several devices aimed at the emerging markets. This LTE capability should create more design wins for Intel. The smartphone market is expected to reach over 900 units in 2013 and with Intel's LTE solution, support for the Android OS, and next generation processor due out in the second half of the year, the design wins could lead to another 10-15% in units for this year. 2014 is the year I expect Intel to shine in the smartphone market and I would not be surprised to see Intel capture close to 20% or more of the market which could be conservatively 200 million units. Assuming an average price for the chipset of 15, more if including the optional LTE baseband chip, that would equate to approximately $3 billion in revenue from smartphones in 2014.

Intel is not quite ready to be a dominate player in the high-end smartphone segment of the market but has demonstrated that it has LTE capabilities for the mid-range segment and with another generation could be able to provide a solution for the high-end segment of the smartphone market. Intel has several design wins this year for emerging markets through its partners and with the introduction of LTE support should continue to see growth in market share. The inclusion of support for the Android OS with the Windows OS should also create growth potential in Intel's market share. 2013 will be a good growth year in the smartphone market. However, 2014 will be an important year for Intel as we see what the next generation chipset will be able to offer. 2014 will also be the year, I believe, Intel will prove that it can compete in every segment of the smartphone market. This is important because it is when we will start to see the P/E multiple expansion for Intel.

The end of 2013 is also when the 22-nanometer, 3-d transistors will be launched and we will see how far into the leading edge Intel can get with this latest generation of smartphone chips. I see a lot of upside to a position in Intel and not a whole lot of risk. Intel has a fortress balance sheet and pays out a 4% dividend that is under 40% for a pay-out ratio. With their stock price down around $21.5 and the possibility of gathering 15% - 20% of the smartphone market share by the end of 2014, I see good growth possibilities and a financially sound company. In my last article, I predicted a share price of $36 by 2016, but this review of the Intel LTE solution makes that prediction a little more on the conservative side.

Disclosure: I am long INTC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Intel's LTE Will Expand Its Market Share