Intel: Inside Internet Of Everything And Internet Of Things

Dec. 5.13 | About: Intel Corporation (INTC)

Intel (NASDAQ:INTC) has conceded defeat in the battle for mobile chip leadership. However, based on the statements of its Chairman, Andy Bryant, it is not conceding the war. Intel may have missed the early money train of tablet PC and smartphones but it is still in great position to catch up with ARM market leader, Qualcomm (NASDAQ:QCOM).

The company held an investor meeting recently and many shareholders were not happy with the flat revenue and net income growth prediction for 2014. Intel's management acknowledged that, despite the robust sales of its new Atom Bay-Trail chips, the company will not see any significant improvement in its bottom line next year because they are indeed giving huge discounts to OEM manufacturers for Bay-Trail processors to gain market share in the tablet PC category.

Investors also worry that Intel may not be able to ship out its target 40 million tablet chips for 2014. Digitimes hinted that Intel will only be able to deliver 30 million tablet chips next year. A rumor like this further dampens investors' enthusiasm for INTC.

As of December 3, the stock is still trading at $23.55, still down 3.2% over last month's price. The low P/E ratio of 12.70 is a clue that investors are not giving the company enough love despite Intel's robust 2013 financial performance. Instead of cheering after Intel reported an impressive $11.6 billion net income this year, investors actually drove the share price down.

Good News: Intel Wants Its Processors to Power Internet of Everything

Intel is getting knocked down by Qualcomm, ARM Holdings (ARMH) and Samsung (OTC:SSNLF) in mobile chips but the company is a proven high-stamina heavyweight champion. Intel is up and aggressively fighting for a larger pie in mobile processors. It has more than $19 billion in cash reserves to power up its market share grab.

Intel's new mobile strategy also includes entry into the lucrative high-margin hardware processors business in the telecommunications industry. It has enough free cash flow money to once again gamble on this sector. The chip maker already tried to enter this market but gave up in 2007.

However, the arrival of Internet of Everything and Internet of Things concepts made popular by Cisco (CSCO) inspired Intel this year to reconsider. This development is further confirmed this December Intel really wants its processors inside the routers, switches and base stations that telco companies use to deliver services.

Cisco, Juniper Networks (JNPR) and Alcatel-Lucent(ALU) are already dominant players in this market sector, but Intel is confident it has the technical knowledge to successfully offer more cost-effective hardware solutions to telecom companies. Right now, telco companies are spending big money for router or base-station equipment because of the high prices that custom ASIC processor manufacturers charge Cisco and telco hardware suppliers.

Intel is looking forward to pushing its improved unified platform for Software Defined Networks which it first unveiled last year. Software Defined Networks (SDN) is a cheap alternative to Cisco's expensive hardware-based networking products. The rabid competition in the telecommunications business means telco companies will go for the most affordable hardware products to deliver their wireless data and voice services. Intel may just have a strong chance of stealing enough clients to make this second attempt a success if they deliver on their promise of more cost-efficient routers, switches and base stations.

Intel Quark: Chip for Internet of Things

Intel also wants to join the party for the Internet of Things. The company has launched its Quark processor 4th quarter of 2013. Quark is a single core 400 MHz processor that's 1/5 the size of Atom chips and is intended for wearable devices or household gadgets like toasters and rice cookers.

The concept behind Internet of Things that people will be using internet-enabled ordinary items around the house and the office. Intel's Quark is perfectly suited for this purpose. It uses less power than ARM chips so Quark should be more appealing to manufacturers' intent on producing products that are web-enabled and also capable of computing processes. A smart watch or smart sunglasses will easily accommodate a Quark processor.

While not as big as the smartphone market, the profit in embedded chips on "Internet of Things" products may be enough to offset the decline in PC sales. The company already owns Wind River so it has the resources and the technology to successfully implement this new strategy. Intel inside smart juice extractors, smart microwave ovens, smart air conditioners, smart vacuum cleaners - the list for embedded chip-powered products is in the hundreds or thousands. Wind River's products are already found in more than 500 million devices and with the arrival of Quark Intel can let its subsidiary produce more sophisticated embedded chips.

If Intel's Quark, or even cheaper versions of it, wins industry favor, Intel will earn enough money for the next 20 years even without any profits from smartphones and tablet computers.


Intel is a great investment despite its sluggish performance in the smartphone and tablet PC chips. The company has a strong potential of earning healthy year to year revenue from selling processors to Internet of Everything and Internet of Things products.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.