Has Intel Found Its Answer To Winning Mobile?

| About: Intel Corporation (INTC)

The rumors that are arising prior to the start of the CES show this week in Las Vegas is that Intel (NASDAQ:INTC) will demonstrate a hybrid mobile tablet running both Android and Windows on the same machine. In this case the Android O/S and apps would run inside Windows in a Virtualization Mode. It is an interesting path for Intel to take and one that leverages the performance advantages inherent in their x86 architecture relative to ARM (NASDAQ:ARMH), especially if it is going to be based on their new 14nm Broadwell chip. The first thought I had with regards to the capability is the old Microsoft (NASDAQ:MSFT) slogan "Embrace and Extend" as Intel attempts to satisfy the entire non Apple market that only they can do and is out of reach of the rest of the ARM processor vendors.

Intel's plans to ship processors into 40MU tablets in 2014 are likely based heavily on an uptake in the corporate market primarily with Microsoft Windows. And yet these same PC customers are also shipping Android systems. Intel's control point is greatest with these customers (i.e. HP (NYSE:HPQ), Dell, Lenovo) who still rely heavily on them for Xeon Server Processors and x86 client processors for mobile and desktops. As hardware continues to commoditize, Intel appears to want to unify Windows and Android under one tablet and to box out Qualcomm (NASDAQ:QCOM), nVidia (NASDAQ:NVDA) and others.

As many folks have noticed, virtualization can absorb substantial resources running on top of another O/S. However, Intel has lots of experience over the years running VmWare (NYSE:VMW) in server environments and they have a history of software emulation, which in this case would be to translate ARM instructions down to x86 but with a significant performance hit, typically as much as 80%. This latter path would allow Intel to run the latest version of Android that typically is available on ARM before x86.

We are not sure whether Intel will take with regards to Android support and perhaps they will do both as a way of claiming that their x86 processors can run the full suite of Android apps, like the ARM vendors. Either way, it would likely promote the concept and full productization on Broadwell instead of Atom in order to maximize the performance of Android on the hybrid platform. This would be another reason why I believe Broadwell will be Intel's real tablet play and not Atom. Tablet is an extension of the ultrabook, just a little smaller and Broadwell finally hits the power specs needed to go into the 8-10" formfactors.

If Intel is serious about controlling corporate and pushing back on Apple's (NASDAQ:AAPL) iPad, then they need to offer something that is different as Apple has built a head of steam in the past few years without any significant competition. Tim Cook has referred to the fact that the trend of convertible PC mobiles is like combining a toaster with a refrigerator. I think this is too simple of a characterization of what is occurring in mobile as the question for corporate is not one of hardware but of the true software O/S and application survivors.

Apple has so far drawn a line in the sand saying they will continue to keep iOS and OS-X mobiles separate while they hurriedly attempt to funnel most business to their higher margin iOS mobiles. Their rumored "iPad Air Pro" with a larger 12" LCD that is expected to come out later this year is targeted at drawing even more customers away from the Mac Pro notebooks and eventually synchronize with a bolstered cloud delivery of Apps that previously would only be resident on the Intel powered machines. Who has the correct model for corporate and consumers? Perhaps both?

We often forget that corporate is an endless war with seemingly slowly shifting allegiances. Have Intel and Microsoft responded adequately and in time to shore up their profitable corporate base? Neither will wait for the other, thus Intel's hybrid plan, and yet in the end they jointly are required to reap the profit.

There has always been a deep loyalty within the Apple fan base and what is underappreciated is the corporate IT attachment to Microsoft and Intel. These past four years the corporate world witnessed a computer revolution begun with Steve Jobs unveiling the first iPad, there was confusion magnified by the incoherency and delay on the Wintel side with Windows 8 and with high-powered Ivy Bridge processors and not a Broadwell in sight. There was only one logical response: test drive Apple and hold off on PC refreshes. The extraordinary extension of the PC lifecycle that in most cases exceeds 5 years and has been further drawn out by the weak economic recovery, or lack of one in the case of most of Europe, which represents 25% of the world economy is truly one for the ages. Hardware is getting cheaper and the range of options continues to grow. Perhaps corporate was thinking Microsoft and Intel would never get off the mat.

Intel's deepest underlying strength is in delivering outstanding performance in both its server and core processors. The level of excess performance that is available today with Haswell and soon with Broadwell at 14nm in the mobile environment is staggering. The great achievement that has finally occurred in the past two years is the tempering of the performance a tad and leveraging the tri-gate process to achieve thermal targets that are more in line with thin mobile enclosures and to minimize deep sleep power on par with ARM processors. With Broadwell, it appears Intel will have right sized the processor die sizes (estimated at 30% reductions) such that they can pursue the hybrid operation across a line of chips that can sell at reasonable prices and still achieve gross margins above 60%. There is a branding play here with Broadwell that is a much better fit than Atom and which corporate IT will be able to understand and standardize on. Many will forget, but not corporate, that Atom retains the distant smell of cheap netbooks that were at one time hailed by Paul Otellini but are since best forgotten.

It is assumed that Microsoft and Google (NASDAQ:GOOG) will not bless Intel's hybrid approach. I think that if Redmond gets beyond their visceral dislike of Google, they could see a way of performing their own Embrace and Extend just as they did when Netscape showed up in 1995 running on top of Windows. Could Google searches be redirected through Bing and Outlook take precedence over Gmail? Microsoft knows that they have to start offering the software for free if they want to get as many devices in people's hands so that they can sign them up to their cloud because in the end, he who has the biggest cloud wins.

For Intel, controlling the platform with a Hybrid approach could reignite unit growth and allow them to more easily bundle their wireless and baseband solutions on reference boards shipped out to the broader customer base. Thus in the end, Intel could leverage their performance advantage to win mobile by creating a platform that can be all things to all customers.

Disclosure: I am long INTC, AAPL, QQQ. 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.

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