Seeking Alpha
Long/short equity, contrarian, independent research, tech
Profile| Send Message|
( followers)  

There's a rumor floating around that Intel (NASDAQ:INTC) is the top chip contender for Google's (NASDAQ:GOOG) upcoming small Nexus tablet (this time known as the Nexus 8), courtesy of Digitimes. While this rumor may or may not be accurate, and while plans are always subject to change, such a win would be of major strategic importance to Intel's long-term position on Android.

A De Minimis Financial Impact

The Google Nexus 7 tablet is popular, shipping about 6-8 million units since the refreshed version hit the market. Now, understand that the financial impact of such a win (given Intel's BoM subsidy/contra-revenue picture) is likely to be minimal to negative since Intel is unlikely to recognize any net revenue for the product (but each unit sold will add to cost of goods sold).

However, even if Intel were selling a part that were accretive to gross margins, it's important to understand that from a financial standpoint 6-8 million tablet chips at $25/piece just isn't going to move the needle for Intel; $150-$200 million in additional revenue is nice, but not a game changer in and of itself.

The Strategic Importance: Android

That being said, there would be a massive strategic benefit to Intel if it were able to win a flagship Nexus tablet, branded by Google itself. See, as I outlined in my article, "Intel's 40 Million Tablet Campaign Finally Makes Sense," Intel still has some compatibility/optimization issues on Android that it needs to convince developers to work on. In particular, there are still major game engines out there today for Android that do not yet have support for X86 and must run via emulation. This leads to a roughly 50% reduction in delivered performance on Intel hardware.

Now, while Intel is working pretty feverishly with developers in order to vanquish these problems, it's unlikely that the vast majority of developers will really want to make the switch until Intel hardware is ubiquitous in the Android ecosystem. I'm not just talking no-name Chinese tablets either where the focus is on cost and "good enough," but I mean in the mainstream/higher end, particularly in the US and Europe.

64-Bit May Save The Day: Thanks, Apple (NASDAQ:AAPL)

Android is about to see a pretty big transition to "64-bit," likely sparked by the marketing blitz that it went on promoting its 64-bit A7 SoC. While this is more marketing than actual technical need, Google is likely to look for any and all technical advantages/marketing buzzwords it can slap onto its tablets in order to generate sales.

Further, since Intel isn't just a hardware vendor but a pretty intense software house (Intel reportedly has more people working on Android than Google itself does), Intel could work with Google to not only to bring a 64-bit version of Android with the attendant 64-bit hardware to market, but it could also work aggressively with developers to port over their native applications to X86-64 under the premise that it's time to get 64-bit applications to market as quickly as possible.

Understand that this is the perfect excuse for Intel and X86-64 to gain traction in mobile. Without the "64-bit edge," porting applications over to X86 was, honestly, just a pain for developers. But if you're doing this porting job in the name of a 64-bit transition, then it becomes a lot easier to swallow (especially if Intel sends over bags of cash and/or personnel to help you with that transition).

Conclusion

I think that if Intel moves quickly enough with 64-bit Android and Bay Trail-T, it could not only help Google's platform be "64-bit ready" in a fairly short amount of time, but it will also see X86-64 become a first class citizen on Android, rather than the ugly stepsister that it - along with MIPS - are today. Winning a Nexus 8, and winning it largely due to 64-bit support, could finally be the "great equalizer" on Android.

If Intel really does win the Nexus 8, and if it really is running a 64-bit version of Android, then I think all Intel shareholders should understand that it was Apple, in accelerating this 64-bit transition in mobile that ultimately saved the day.

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.

Source: Apple Saves Intel's Mobile Strategy