Intel (NASDAQ:INTC) is the largest semiconductor manufacturer in the world by dollar volume. The company has been maligned in the past few years for being "stuck" in the PC business and for "missing" the mobile business.
In fact, as a manufacturing and technology giant, Intel has been "getting ready" by building what to many looks like excessive fab capacity. Intel finally has all of its product ducks in a row and will need all of the installed manufacturing capacity.
What are the markets that need the technology that Intel offers?
- Super computer CPU chips
- Data Center server chips
- PCs, Including PC/tablet convertibles
- Tablet computers
- Foundry, non-competitive
Super computer CPU chips:
Intel is now the go-to company for these Many Core (50 cores) Xeon Phi super computer chips. This teraflop capable chip is the absolute pinnacle of the computing hierarchy. Often thousands of these processors are used in a single machine for super computer scale problem solving such weather modeling and sub-atomic particle behavior analysis.
Data Center server chips:
Intel has quietly become the acknowledged leader with the industry's highest performance server chips that enable the Internet and cloud computing. The Xeon E5 anchors the high performance end of the server market while the new Atom Centerton completes customers' ability to choose the right server solution for their application. The HPC and server business is $10 billion business growing to $15 billion in the short term.
With the new Haswell low power CPU shipping now for end products to be introduced on June 3, 2013 or shortly after, a new life for the PC begins. The Haswell is low power enough make light thin Ultrabooks truly desirable products with up to 13 hours of battery life.
The real "must have" product enabled by the Haswell is a clamshell notebook and detachable tablet convertible along the design lines of the Intel North Cape. Imagine having a full function notebook for your heavy lifting creative work and a detachable tablet for casual content consumption. Obviously, this notebook will run a single copy of Windows and have all your files, photos, and documents available in both tablet and PC modes. 95% of the PCs shipped each year are WinTel machines, about 5% are Apple (NASDAQ:AAPL)/OSX machines and that number is beginning to decline as it is cannibalized by Apple's own iPads. So far Apple doesn't have a Mac/iPad convertible, and it will be a tough decision for it to make one.
The Haswell is breaking new ground with in-package power management and embedded DRAM in certain models. As time moves on, we could be surprised with the integration of the solid state drive in the CPU package as well. Intel's content in PCs could grow from the $100 of the current Ivy Bridge to $250-300 when DRAM memory, SSD, communications, and power management are all included in an Intel "compute module." This move alone more than doubles Intel's annual revenue.
Haswell is a game changing technology.
Intel powered, Windows 8 tablets have taken off on a surprising growth curve. WinTel tablets achieved 7.4% market share in the first quarter of 2013. These low cost computers run full Windows 8 and use the Intel Arm based Clovertrail processor.
By the 2013 holidays, you will be able to buy Intel Bay Trail based tablets. Bay Trail is the quad core version of the new architecture Atom processor. With the introduction of the 22nm Bay Trail chip, all competition in the stand-alone tablet SoC business will be shut off.
The Bay Trail will be the only chip able to run Windows 8 and the Android Operating system, thus covering virtually all tablets except the Apple iPad. The stand-alone tablet business is expected to grow to 200 million units. A $50 Intel SoC in each one of those represents another $10 billion market opportunity for Intel. Ultimately, these chips will also include embedded memory and may sell for twice the $50 as a super integrated SoC.
Intel has dipped its toe into the smartphone business starting in 2012 using the CloverTrail+ chips. The performance reviews have been outstanding. The impediment has been the lack of an Intel built multi-mode, multi-band voice and data LTE chip. That show-stopper disappears with the introduction of the XMM7160 chip by the end of June. That chip will, at first, will go in-package with the Merryfield SoC. The Merryfield is a dual core version of the new Atom architecture SoC with functions specific to smartphones. Performance is said to be twice that of the, already very good, CloverTrail+, with even lower power and maybe much lower power.
The mating of the Merryfield and the XMM7160 will mark the real beginning of the smartphone design penetration by Intel.
At about 600 million high end smartphones using a $30 Merryfield/LTE SoC, Intel is looking at another $18 billion potential market.
Intel has entered the semiconductor foundry business. At this point, we need to look into definitions. "Foundry" has come to mean manufacturing product designed by fabless semiconductor companies who, in turn, sell their products to end customer OEM equipment manufacturers. That's simple enough. In the case of manufacturing, an OEM customer's designed chip that will not be sold on the open market, the correct term is custom chip or ASIC (Application Specific Integrated Circuit).
The distinction here is subtle, but necessary. Intel is doing ASIC or custom manufacturing for Cisco. They are doing foundry work for Altera and a few other fabless semiconductor companies that do not directly compete with Intel in the general market. As I write this I have learned that Intel has agreed to do foundry work for Microsemi Corporation (NASDAQ:MSCC).
The reason I have gone into these definitions is that, in the case of Intel, the conditions on ASIC work is less restrictive than foundry work. Therefore, Intel could justify manufacturing "A" chips for Apple since those chips will not end up in the larger market as competition to Intel BayTrail and Merryfield chips. Apple chips would be viewed as ASICs.
The Foundry/ASIC business for Intel could be in a range of a few billion to $15 billion depending upon decisions between Apple and Intel.
Intel controls the high performance computing, Data Center, and personal computer segments. The company has begun a foundry/ASIC presence. The mobile ducks are now in line to do a rather violent penetration into the tablet computer and smartphone space.
Based simply on a few building blocks (Haswell, new Atom, and XMM 7160) arranged in different products and packages aimed at specific markets, Intel will prove all the naysayers wrong.
There simply isn't a high performance market segment of interest that is not covered by Intel.
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.