There, I said it. Intel (NASDAQ:INTC) is very likely to continue to win further design sockets at Samsung (OTC:SSNLF), something that just a few months ago, ARM (NASDAQ:ARMH) bulls/Intel bears would have balked at. In fact, when I first published my piece, Intel Wins Samsung's Galaxy Tab, many commenters believed that it was an unsubstantiated rumor (when in fact the evidence was all there). It is my view that Samsung plans on using a ton more Intel chips going forward.
Why Would Samsung Use Intel?
Samsung has a semiconductor manufacturing plant geared towards CPU/SoC development. It licenses its process from the Common Platform Alliance and leverages its financial muscle to build and operate the manufacturing plant. Currently, Apple (NASDAQ:AAPL) accounts for most of Samsung's non-memory semiconductor business, but with the rumor mill strongly suggesting that Apple is going to jump ship to Taiwan Semiconductor (NYSE:TSM), it would seem prudent that Samsung fill its capacity with its own chips. So why would Samsung use Intel?
Well, if you think about where Samsung's operating profit comes from - selling devices, memory, screens, and the like - you begin to realize that in the scheme of things, Samsung isn't really a chip designer or chip manufacturer of the same caliber as Intel, whose whole existence is devoted to micro-processors. See, Samsung is able to sell phones like the Galaxy S IV for a rather large, Apple-like premium because the phones are viewed by customers offering the best user experience. Processing power and phone snappiness is absolutely part of the user experience, and if Samsung can do better by using Intel's chips than its own in-house designs and as a result end up charging for premium performance/battery life (or not having to cut costs due to inferior performance), then it makes complete business sense.
This is why I firmly believe that any discussion about Intel and its stock very necessarily needs to include a discussion about technology and performance/watt characteristics. Given Intel's strong brand, its scale, and its OEM relationships, it really is up to Intel to deliver the best performance/watt chip and do so with a good cost structure. If Intel can demonstrate a meaningful performance/watt over its competitors, then somebody will adopt it in an attempt to gain an edge. This, of course, will lead others to also adopt the platform so that they are not outdone on performance or battery life.
It's all the same reason that virtually no high end notebook systems use processors from AMD (NASDAQ:AMD), and why all high end smartphones sans the iPhone employ high end Qualcomm (NASDAQ:QCOM) chips. At the high end, the company that puts out the "best" part (in this case as defined by performance/watt in the majority of programs) will very quickly gain (or simply retail) market segment share.
Samsung Is Likely On-Board For The Future
The Galaxy Tab win for Intel is nice because Intel not only sells the Atom SoC but it's also selling either a 3G or LTE chip (depending on the model) with this design. While selling both comms and apps processor should bode well financially, the real win is that Samsung is likely on-board for future iterations of Intel's chips. It is my belief, and the belief of other Intel bulls, that when Samsung saw what the Silvermont based Bay Trail platform was capable of doing, it decided that a longer-term collaboration with Intel would be a smart move. While the Clover Trail+ part in the Galaxy Tab is certainly a solid performer, it's merely on-par with the best ARM stuff available today. My bet is that "Bay Trail" really delivers the knock-out punch and shows that in thermally constrained, battery powered environments, its performance is unmatched (no, sticking the tablet in a freezer or making up performance charts based on limited hypothetical data doesn't count).
But "Bay Trail" is just one part. Samsung's device team almost certainly has the inside scoop on what Intel has planned in the future for Airmont and its successors, and the team wants to be sure that it can successfully transition a good chunk of its product stack to Intel based parts. My guess is that it begins with tablets since that is where Intel will likely really make a splash this year, and then next year you start to see some Intel-powered smartphones based on Merrifield. In fact, I would not be surprised to see Intel inside the Galaxy S V or the Galaxy Note 4.
Let's not forget that the only question here is regarding Android - I have no doubt that when it comes to 7-10" Windows 8 tablets from Samsung, Intel will almost universally win this market, with perhaps a few designs powered by AMD thrown in there. Should Microsoft's (NASDAQ:MSFT) Windows 8.1 take off in small form factor tablets, then this could represent additional market share gains for Intel.
Intel is invading the smartphone and tablet spaces just as Intel bulls have predicted. As Intel's parts have gotten better, so has the design win momentum. Today, Intel is merely "very competitive" on performance/watt in both CPU and graphics, but starting with Bay Trail and Merrifield, I think that there will be clear leadership in CPU performance, competitiveness on GPU, and leadership in power consumption. In addition to sentiment perking up, earnings per share will really start to kick it into high gear as Intel takes these markets by storm. My view is that Intel hits $48/share by 2016, and everything I'm seeing suggests that we are still well on track.
Additional disclosure: I am short ARMH