Long-time readers of my columns know that I have been "the public voice" of the Intel (INTC) bull case for quite some time. I've answered thousands of questions from readers, diligently published my research here on Seeking Alpha (and elsewhere), and have been brutally honest about when I believed Intel was doing well and when Intel screwed the pooch.
Ironically enough, this brutal honesty has not made me a lot of friends among either the bulls or the bears. The bulls have accused me of being "manic depressive" or a "flip-flopper" and the bears have accused me of being too optimistic. However, I am not blind to the fact that despite the vitriolic hate-mail that I get from both extremes, the vast majority of investors appreciate a perspective that is as unbiased as humanly possible. This is what I've built my brand on.
Merrifield Is Likely To Be A Commercial Failure
My followers are likely to have seen the following StockTalk that I posted just recently,
Now, as a well known Intel-bull, I do not make these kinds of statements lightly. Indeed, I am not doing so, particularly as I believe that I am the only person to publicly publish research on the potential competitiveness of this platform (see the work here). At the time, my conclusion on the platform was the following,
While Intel is closing the gap and finally has a more competitive pipeline of products, it's tough to not feel incredible disappointment from both an observer's standpoint as well as a shareholder's standpoint. At the 22nm node, Intel could have done something truly a cut above what its competitors are doing at 28 nanometer if it had started on its designs and had the right SOC development methodology in place earlier on.
Unfortunately, while the 22nm parts are much more competitive relative to the competition than what the 32nm parts had available at the time, it's still not enough. Until Intel has decisively leadership products for the handset space, its market share will continue to be negligible.
Moorefield will be the company's next shot at bat, although I strongly suspect that it won't be until Broxton that Intel can finally win the designs that truly matter and finally drive meaningful revenue growth in the high end of the handset market.
A month later, following Intel's CES presentation, I am now more than confident that this platform is likely to be a commercial flop. There was a case that one could build for a reasonably fast dual core solution with a nice graphics solution from Imagination Tech (OTCPK:IGNMF), and I actually don't think that Merrifield will be all that terrible from a performance/power perspective at all, but it fails to be leadership at the high end and it's not integrated enough to play in the cost-sensitive low end.
In short, Merrifield is an optimal solution for almost nobody.
How Do You Know It Has Few (If Any) Designs?
After years of experience in following chip companies and product releases, I know the tell-tale sign of a loser.
- It's Late - Doesn't anybody find it odd that we are now in January 2014 and Intel still hasn't formally announced Merrifield? Qualcomm announced Snapdragon 600/800 over a year ago and these chips are still winning designs like crazy.
- Intel Isn't Saying Anything About It - While NVIDIA, Qualcomm, and MediaTek spend CES showing off their next generation smartphone/tablet platforms, Intel gave a cutesy presentation about the "Internet of Things" and said precisely ZERO about Merrifield or the designs that it won. If this platform is so great, then surely some benchmarks would be in order?
- Intel's Partners STILL Launching Clover Trail+ Phones - Intel's partner ASUS actually launched some Intel-powered phnnes at CES using the prior-generation Clover Trail+ platform. Where's Merrifield? Why are we still launching phones with Clover Trail+?
- No Integrated Modem/Connectivity - At the JP Morgan Technology Conference, CEO Brian Krzanich was asked about what his customers kept pushing Intel for the most. His answer was that his customers wanted more/faster integration of comms onto the company's Atom products. Whoops! With no integrated connectivity/comms, and without the performance required for a high end hero device, how is Merrifield going to sell?
- Intel Did Not Mention Smartphones As Part Of Guidance - Did anybody else notice that at the Investor Meeting, Intel's CFO didn't mention smartphones once? If there were going to be material sales, then this would have been a highlight, right?
Intel Needs To Do Better
At this point, the market seems to be positive on Intel because it's going to be a foundry for others. It seems that everybody has given up expectations that this company will be able to push its own designs into this space and, while I don't agree with this view long-term, who can blame them? Investors want results, not promises, and it has been now nearly three years since Intel first laid out its revamped smartphone/tablet plans at its 2011 Investor Meeting.
At the 2013 Investor Meeting, head of MCG claimed that Intel had "come a long way" but that he realized that Intel "needed to do better" and "move faster". I still believe that Intel can do it, but at the same time, I have to wonder what the hell went so wrong. How did we get to this point? Why is the company so spectacularly bad at executing in mobile?
I'll tell you why. Intel, unfortunately, is still transitioning its design teams to developing its IP in a more "pre-packaged IP" sort of way. The other SoC companies, like Qualcomm and NVIDIA, have figured out how to develop IP blocks in a way such that IP blocks can be mixed, matched, and swapped out as necessary to build the right SoCs and get them to market quicker.
A Silver Lining
It's not all bad. At the JP Morgan Technology Conference, CEO Brian Krzanich had the following to say with respect to the subject,
There's still some shift that has to occur within the company. From the PC mentality into this fast-paced, integrated SoC environment. We still have some of that work to go do. About how fast you can turn out new silicon and what that means. There's a lot of detail behind that but we think that it's still going to be another 6-12 months while we kind-of flush out some of the design methodologies that were already in queue and shift towards to different design technologies. So the actual architecture of how we design an SoC is going to shift in the next year to allow us to churn out many more iterations as we go into 2015.
This is honestly why I remain long Intel despite the extremely bearish and frustrated view that I gave above. Intel has all of the resources and assets to really win in this space, but it needs to get its ability to design and crank out SoCs in a rapid fashion to more adeptly address these markets.
So, once we get past the Merrifield/Moorefield debacles, Intel should be very well positioned to start 2015 off on the right foot and with an arsenal of truly competitive products. At least this is what I believe and, ultimately, why I hold on to my shares despite what has been some very poor execution over the last several years.
However, if BK doesn't make good on this promise and if Intel is still struggling in 2015, then that's when I will sell my shares. I really, well-and-truly hope that it doesn't come to that, as I still believe Intel really can be the world's leading chip provider in all segment of computing, including phones and tablets.
Until then, though, brace for impact. Merrifield is likely dead-on-arrival as Qualcomm sweeps 2014's smartphone designs.