Intel: Getting Innovative To Gain A Foothold

| About: Intel Corporation (INTC)

Intel (NASDAQ:INTC) is in the news from time to time due to its limited presence in the mobile market. In fact, this is one of the two key things that are affecting the investors' sentiments in a negative way (the other one is the declining PC market). The company is trying hard to get into the space. To start with, the company has been pushing itself ahead in the tablet market.

During its latest investor meet the company made it clear that going forward the tablet market will be its focus market. The company intends to spend 75% more on the tablet segment in 2014 as compared to 2012. The spending will go into R&D as well as for the introduction of the new products.

The company is not only increasing its spending but also is expecting a phenomenal increase in the sales (400%) of its tablet products (see the chart below), primarily Bay Trail.

In 2014, the company wants to see at-least 40 million tablets sold in the market with Intel inside. To meet the target, the company will have to quadruple its volumes in just one year. The target is ambitious, and the company is preparing itself to meet the target since the last few months.

The company has been enhancing Bay Trail so that it can attract the premium product (tablet) manufactures. The prime thing that the company needs to establish itself in the premium segment of the tablet market is differentiation. That means the company will have to develop the products with unique features. The differentiation should be attractive enough for the customers (OEMs) to leave their existing suppliers. The company recently introduced two such differentiations (discussed below) that can help the company to gain some market share.

Dual operating system:

To differentiate its products from its competitors the one thing that the company needs to do is innovate. The company needs to be innovative enough to think beyond existing trends in the tablet market. In fact the company needs to be a trendsetter if it wants to grow its presence in the market.

At Consumer Electronics Show 2014, a tablet product introduced by Asus showed a new trend that may soon become popular among the tablet buyers. Asus introduced a tablet named Transformer Book Duet, one of the world's first tablets with a dual-operating system. Based on Intel's new Bay Trail SoC (System on Chip), the tablet comes loaded with two operating systems (Windows and Android). Tablet users can not only choose the operating system but can also even switch between the operating systems with just a single push of the switch button.

Currently Bay Trail is the only platform that can support and run both Android and Windows operating systems on same device. This unique feature will allow the company to gain attention of the tablet manufactures who want to offer unique products in the premium segment of the tablet market.

64-bit version of Android OS for x86:

At CES 2014, Intel made an announcement that the company has created a 64-bit version of Google's Android, which means that Android has been enhanced by the company to support 64-bit applications that can run on Intel's 64 bit SoC for tablets (Bay Trail). The first tablet to feature 64-bit Android is expected to be available in the first half of 2014, which will make Intel the first company to introduce such a product.

As of now, only a handful of tablets running on Android are powered by Intel. The prime reason behind this is the fact that the company is a late entrant in the tablet market and even after entering the market the company hasn't been offering anything unique that can prompt the tablet manufactures to choose Intel's SoCs for their products. However, the launch of 64-bit Android products may drift the manufactures' attention towards Intel. The 64-bit support will allow the developers to develop the better applications for Android platform due to the availability of better speed and higher RAM.


One of the key reasons behind Intel's limited presence in the mobile market is the lack of product differentiation. So far, the company hasn't been offering something different that can prompt OEMs to choose Intel over their existing suppliers. The introduction of a platform that can support Dual-operating systems, and also the introduction of 64-bit Android products will give the company unique selling points in the highly competitive tablet market where the company is struggling to gain a foothold.

For the first time it looks like that the company can give a serious challenge to its competitors in the tablet market on the innovation front. However, the company may not be able to compete in the budget segment of the tablet market with these platforms, as the products based on these platforms may not be cheaply priced (unless subsidized by the company) as they need more processing resources (RAM), which can lead to higher costing.

  • Fundamentals and Long-term investment perspective:

The company is trading with a PEx of 12.7 and offers a dividend yield of 3.8%. The stock price of the company remained range bound during the last one year due to the concerns mentioned above.

The above innovations should allow the company to increase its presence in the tablet market, but the company may not be able to deliver any kind of positive financial returns from these moves/innovations/platforms in the foreseeable future. These innovations are the end results of significant R&D efforts that lead to huge R&D expenses. It is highly unlikely that the company can scale-up the revenues (from these products) to such an extent that can off-set these expenses.

Nevertheless, the company has given a good start to 2014. The company is moving ahead in the right direction to meet its target (for 2014) in the tablet market. However, there is a very tough road ahead, and it's too early to consider this as a definite breakthrough of the company in the tablet market.

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This article reflects the personal views of the author about the company and one must consult its financial adviser before making any decision

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.