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Intel reportedly planning $1B in tablet CPU marketing subsidies

  • Digitimes' supply chain sources report Intel (INTC +0.7%) plans to offer $1B in 2014 marketing subsidies to tablet vendors adopting its CPUs.
  • They also state Intel is offering huge price discounts to large OEMs using its new Bay Trail Atom CPUs, and even bundling baseband chips for free, but Intel's Taiwanese unit denies those claims.
  • Intel has a long history of providing OEMs with marketing subsidies, and the chip giant has made it clear it's willing to spend aggressively to make up for lost time in a tablet CPU market currently dominated by MediaTek, Qualcomm, and Apple/Samsung's in-house processors.
  • Last week, Intel set a goal of quadrupling its tablet CPU shipments in 2014 to 40M (would be good for a 14% share based on Canalys' latest 2014 tablet forecast).
  • RBC, which cut shares to Hold this morning, thinks Intel is spending $800M (via shared project/R&D spend and contra revenue) to grow its mobile CPU presence, and forecasts the spending will only yield near-term op. income of $200M. Moreover, the firm sees Intel's combined notebook/mobile processor sales posting only a 3% CAGR from 2013-2016, as soaring Atom sales are offset by declining sales of traditional PC CPUs.
  • The Other Intel Architecture unit, which includes Intel's Atom and baseband chip ops (among other things), had a $606M Q3 op. loss on $1.1B of revenue.
Comments (20)
  • DanoX
    , contributor
    Comments (2647) | Send Message
     
    Please take our bribes please! in the end Intel does what it's done in the past kickbacks and glad-handers. It won't be enough.
    27 Nov 2013, 12:51 PM Reply Like
  • Robert McDonald
    , contributor
    Comments (1251) | Send Message
     
    Anyone thinking that Intel's margins are not going to drop significantly as they buy their way into and then sustain competitiveness in mobile is not being realistic.

     

    Their gravy days, something like 25 years, with huge X86 margins and a growing X86 market, are over. The only competitor of any consequence was minority player AMD which has also helped keep some possible negative FTC rulings at bay.

     

    There are many competitors out in front of Intel in the mobile chip market place so it is going to be a long slow slog even if successful. It is risky to place bets on that until there is demonstration of true progress vs. bought in progress.

     

    They should have moved much more forcefully and much earlier but at least the new CEO Brian Krzanich understands that and is taking appropriate action. Better late than never.
    27 Nov 2013, 12:53 PM Reply Like
  • investingInvestor
    , contributor
    Comments (1462) | Send Message
     
    40M units in unsold Intel Atom tablet inventory in 2014. That sounds like netbooks about 5-7 years ago.
    27 Nov 2013, 01:17 PM Reply Like
  • Justin Jaynes
    , contributor
    Comments (3148) | Send Message
     
    what's a netbook?
    27 Nov 2013, 08:38 PM Reply Like
  • investingInvestor
    , contributor
    Comments (1462) | Send Message
     
    Justin, are you too young to remember? heh-heh

     

    Just 5-7 years ago, Intel and Microsoft marketing ginned up the next big thing, netbooks. The Atom CPU line was designed for netbooks. There was a flood of placed articles, blogs, shill commenters. Soon after customers got their hands on netbooks, reality set in and sales plummeted. WINTEL netbooks were under powered and disappointed customers. In parallel, Apple Macbooks thrived as customers compared netbooks side by side. Best viral marketing Apple could want.

     

    HW vendors were stuck with their sunk costs, unsold inventory, bad customer sentiment, disparaged brands, holes in their bank accounts. Meanwhile, Intel and Microsoft gross sales and profits received a significant boost. This really worked.

     

    Rinse and repeat WINTEL's game up to today. But an inflection occurred in the second half of 2012 involving SoCs, ARM, Apple, Google, Samsung, Qualcomm, Broadcom, Nvidia, Imagination, and ecosystems. THE WINTEL duopoly is gone. Microsoft has moved on. Intel refuses.
    28 Nov 2013, 02:35 PM Reply Like
  • flux8
    , contributor
    Comments (589) | Send Message
     
    "Better late than never." That remains to be seen. IMHO, it's too little too late. I know people who have worked in the tech industry who recall the days when Intel was the 800 lb gorilla that you HAD to listen to if you wanted to ensure adequate supply at reasonable prices. In the new world of mobile computing, the balance of power has shifted. I think the device makers have long memories and aren't as likely to go for Intel's "bribes". Nothing comes for free, esp from Intel.
    27 Nov 2013, 01:33 PM Reply Like
  • Robert McDonald
    , contributor
    Comments (1251) | Send Message
     
    The biggest mistake Intel has made in recent times is the failure to pull out all the stops and get Apple's mobile web device business and they should have done this several years ago. This is probably Otellini's biggest failure and he should have known better. Most likely it is too late now.

     

    This is very unfortunate as this would have created a very dynamic and powerful American based duo. Samdung/Android could have been stopped in their tracks much sooner.

     

    I am sure Apple would have been open to a long term arrangement. Unfortunately there is every reason to believe Intel's pricing (aka greed) and term sheet complications drove Apple away. I am sure they had multiple opportunities for several bites at the Apple but the internal bureaucracy, attitude and the inability to innovate outside of their high density integrated circuit design and manufacturing skill set killed any realistic deal.

     

    Very few companies have the luxury of being effectively a sole source provider of a very high margin product family for over 25 years. They should have known they needed to innovate on their internal management practices many years ago.
    27 Nov 2013, 01:44 PM Reply Like
  • DanoX
    , contributor
    Comments (2647) | Send Message
     
    Intel is not alone however Motorola and I.B.M. were also approached by Steve Jobs years before they also said no, imagine if I.B.M. had, the will/foresight to design and build laptop and mobile Power CPU's instead of running away, Watson would have had little brothers and sisters and I.B.M. would be selling
    at 400-600 a share.
    27 Nov 2013, 04:25 PM Reply Like
  • jhawkinstx
    , contributor
    Comments (73) | Send Message
     
    That is assuming apple is worth having. Their market share of tablets is eroding rapidly. The long term future appears to be android based sub 200 tablets. I am typing this with my thumbs on a two generation old ipad and have had a $300 apple gift card in my wallet for nearly three years....have not seen anything I needed to buy from them that was an improvement over what I already have.
    28 Nov 2013, 07:49 AM Reply Like
  • jhawkinstx
    , contributor
    Comments (73) | Send Message
     
    IBMs money is made in the ultra high margin services business...they were the only major player smart enough to dump the pc and the try to dump the commodity server business before the margins crashed. Compaq tried to get more in the services business by buyin digital....and failed....Hp bought CPQ and then eds to get in the services business and failed .....oracle bought a mostly hardware company sun and have had to defend the lack of profitability of their newly acquired hardware business ever since......

     

    Everyone is trying to become more like IBM.....and I don't see IBM trying to get back intmore hardware.
    28 Nov 2013, 07:55 AM Reply Like
  • jammerculture
    , contributor
    Comments (398) | Send Message
     
    You guys are nuts. The OEMs need this as much as Intel. Without the success of Baytrail and Windows 8.1, they are just as irrelevant. "Wintel" paid their bills. Without it, Samsung and Apple will continue to eat their lunch.
    27 Nov 2013, 11:49 PM Reply Like
  • sethmcs
    , contributor
    Comments (3228) | Send Message
     
    Long INTC. I am only in it for the dividend and to be entertained by the wailing growth guys.
    28 Nov 2013, 12:39 AM Reply Like
  • ivorte
    , contributor
    Comments (8) | Send Message
     
    $1Bn to get 40M unit sales = $25 per chip in subsidy! Which means they are probably selling at a loss (actually looking at "Other Intel Architecture" in the financials they are already making significant losses before they start any incentives). If so isn't this anti-competitive dumping?
    28 Nov 2013, 05:03 AM Reply Like
  • jhawkinstx
    , contributor
    Comments (73) | Send Message
     
    Well...at least someone convinced the Chinese govt to go after Qualcomm instead of intel for anticompetitive behavior,,,,,,right as the are starting to build out their national 4G network with china mobile using intel for their network infrastructure......this was on the analyst call....just nobody seems to be talking about it.
    28 Nov 2013, 07:59 AM Reply Like
  • MJDD
    , contributor
    Comments (65) | Send Message
     
    @invorte, what an astute observation. Their internal goal is 60M chips, so maybe $17 per unit (and maybe more than one chip in a "unit"). But still, that's got to be a huge hit to their margins.

     

    It will be worth it though, if it gets them, critical mass, in Android tables (so Android developers, target Intel chips).

     

    So, does Intel stock go up, because they might succeed in tablets, or does it go down, because of the potentially temporary loss of profits?

     

    Might be even worse for AMRH though.
    5 Jan, 03:11 AM Reply Like
  • David RG
    , contributor
    Comments (1104) | Send Message
     
    "with china mobile using intel for their network infrastructure"

     

    ??? Intel doesn't make network infrastructure. What are you implying?
    28 Nov 2013, 09:09 AM Reply Like
  • Cincinnatus
    , contributor
    Comments (3565) | Send Message
     
    David, just another thing that you don't know about Intel. If you ever figure out what Intel actually does and on all the fronts Intel is advancing you just might want to go long it.
    29 Nov 2013, 12:34 PM Reply Like
  • David RG
    , contributor
    Comments (1104) | Send Message
     
    I am long Intel Cincinnatus.
    29 Nov 2013, 06:00 PM Reply Like
  • David RG
    , contributor
    Comments (1104) | Send Message
     
    I am also very interested to learn what LTE wireless infrastructure equipment Intel makes. Really.
    29 Nov 2013, 06:04 PM Reply Like
  • Tack
    , contributor
    Comments (13270) | Send Message
     
    Intel spent years producing heat-producing, power-hogging processors, necessary to power Microsoft's increasingly bloated, inefficient code. Those days are history, but, even now, Intel hasn't fully realized the implications nor recovered from the lethargy that such dependence produced.
    29 Nov 2013, 12:52 PM Reply Like
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