Intel (NASDAQ:INTC) has been the dominant microprocessor company for decades, but its presence in the smartphone and tablet segment has been essentially non-existent. Two recent Seeking Alpha articles, from Russ Fischer and Ashraf Eassa, suggest that this is soon to change - with Intel now focusing on winning the mobile battle, which the authors suggest they will win because they are Intel. The fact is, that Intel has been trying for years, and has failed miserably, a trend unlikely to change. Moreover, with ARM (NASDAQ:ARMH) increasingly gaining traction in notebook and server, Intel has much more share to lose, then they stand to gain.
In Mr. Fischer's article he joins the chorus of Intel fans stating "Intel led the mobility trend beginning with the Centrino platform of nearly 10 year ago," and suggests the reason Intel has not gained traction in smartphone/tablet is they've been busy becoming dominant in server and high performance computing. We're not sure why a company with over 80,000 employees couldn't attack both tasks.
Mr. Fischer is very excited about a Clover Trail prototype, which compared to two tablets powered by Nvidia (NASDAQ:NVDA) Tegra 3 processors "makes the other two look like toys."
What Mr. Fischer fails to mention, but Mr. Eassa states is:
"However, the big challenge for Intel in 2013 will not be the mobile SoC designs shipping today, but rather the upcoming designs based on the very powerful ARM Cortex A15. In terms of performance, it is unlikely that the current Atom processors - even in their brand new mobile SoC forms - will be able to compete with SoCs based on the new ARM chip in terms of raw performance."
We couldn't agree more. Intel, we are confident, will remain a tick-tock behind.
Nonetheless, Mr. Eassa remains hopeful that Intel will be a major player in mobile and writes, "Intel has a habit of dominating every space that it feels threatened in." In fairness to Mr. Eassa, he writes a very balanced piece, gives ARM its due, and discusses, at length, multiple headwinds that Intel faces. Still, he remains an optimist.
Having followed Intel for some time, we have a somewhat less sanguine view about Intel than our fellow authors.
A quick review of Intel's history in mobile:
2006: In June Intel sells XScale to Marvell (NASDAQ:MRVL) for $600 million in a deal that closes November 2006. Xscale had achieved notable wins in PDAs with Hewlett Packard (NYSE:HPQ), Dell (DELL), and Palm. Of course, XScale used ARM architecture.
2007: Presents Menlow and Moorestown at the Intel Developers Forum. We're not aware of any major (or minor) platforms ever brought to market using these chips.
2008: The atom processor is introduced (Silverthorne), with a focus on mobile devices. It does not gain traction in mobile, but is adopted in the netbook market.
2010: Intel and Nokia rouse the audience at Mobile World Congress with the amazing MeeGo OS. This foray into developing a mobile operating system is put to sleep..permanently, in 2011.
2011: Medfield is announced, with samples to come in 2012.
So of course Intel could get it right, but history is not on their side. And while we recognize the Medfield/Clover Trail SoC could gain traction, this is not just about price/performance. ARM has an established ecosystem with well capitalized licensees including Apple (NASDAQ:AAPL), Nvidia and Qualcomm (NASDAQ:QCOM). It simply won't be easy to disarm, ARM.
Of course, while Intel is attacking the high growth "$10-$15 billion" smartphone/tablet apps processor market, they will be busy protecting their turf in the server and notebook market. Mr Fischer appears to disagree as he wrote, "Intel needed to consolidate and control the server and HPC segments, since it is a contest that will be won once and never fought again."
We're not quite so sure the battle is over. We wrote last February about the emergence of ARM as a serious player in the segments - a view met with some skepticism. Since then Dell and HPQ have both blessed ARM, and Applied Micro Circuits (NASDAQ:AMCC), Marvell , ST Micro (NYSE:STM), privately-held Calxeda and even AMD (NASDAQ:AMD) are all working on silicon.
ARM's new Cortex A-57 appears very are impressive, albeit two years from market. We're not certain that ARM will win big in server, but the initial feedback from OEMs and licensees is more positive than anything Intel has ever heard in mobile. And importantly, even small market share gains by ARM over the next 2-3 years would be meaningful, and painful to Intel as its their highest GM segment - coupled with our expectation that PCs will shrink. A couple of points of market share won in tablet/smartphone won't offset precious server share losses - and history is not on Intel's side.
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.
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