SAN FRANCISCO — Analysts at JP Morgan are calling for Intel to shut down its mobile and communications group to improve corporate profitability in the wake of poor earnings per share in the first quarter of 2014. But the x86 giant and at least one other analyst said the company should stay the course in the hotly competitive smartphone and tablet market.
“We continue to believe mobile is unprofitable for Intel," a JP Morgan statement read:
We continue to believe Intel will lose money and not gain material EPS from tablets or smartphones due to the disadvantages of x86 versus ARM and overall low profitability of the tablet and handset processor market. If Intel were to shut down its mobile business, we estimate it could unlock roughly $0.50 in 2015 EPS.
The mobile and communications group saw a $3.1 billion operating loss in 2013, with 1Q 2014 losses hitting $929 million and revenues at $156 million. While Intel officials acknowledged the loss, several were quick to call recent financial numbers an “investment” in the mobile ecosystem.
“This is definitely more of an investment -- a well understood strategy for Intel’s computing leadership perspective,” Julie Coppernoll, vice president of Intel’s mobile and communications group, told EE Times. “We feel that we have a plan, we understand how we’re going to deliver, and are making investments that improve our particular competitiveness from a platform cost perspective.”
Rather than take JP Morgan’s suggestion to shut down mobile, as Texas Instruments did, and refocus efforts on higher-margin PC and foundry businesses, Intel reaffirmed its commitment to tablets and LTE. Growth in Intel architecture will be one of the biggest in mobile, Coppernoll said, and the developing tablet market will quadruple the company’s volume.
“Our expectations [for the tablet market] haven't changed. There may be [variations] -- the second decimal may have changed, but directionally it's the same,” Intel CFO Stacy Smith said in a quarterly results call. “We’re actually feeling pretty good about the line of sight we have across the customers, the longer-term agreements we have in place, and design wins that we know are coming to market, as well as the Q1 volume.”
Responding to comments about the efficiency of Intel’s x86-based processors, Coppernoll said the company’s chips are competitive at a power level and pointed to the new generation of its Atom chips, code named Broxton, as “hero level” devices. The 64-bit mobile chip for smartphones and tablets is based on new CPU and graphics cores.
“We don’t take any competition lightly, but we're confident that our Intel Atom (Bay Trail) processors will continue to be the performance and performance per watt leader,” said an Intel spokesman. “Keep in mind we are also manufacturing these chips now at 22 nm, and we are in the process of starting up our 14 nm process.”
While JP Morgan’s suggestions might increase profit, Intel has no choice but to stay the course in the mobile market, said Will Strauss, president of market research firm Forward Concepts. Intel should adopt a strategy similar to Nokia's, emphasizing third-world markets rather than the US.
“To compete with Qualcomm, they’re going to have to pump in hundreds of millions to catch up. There’s nobody else out there that has the finances that Intel has to compete... Qualcomm is about two years ahead of anything Intel’s got,” Strauss said.
As for cost, Intel aims to decrease its bill of materials across various products. Smith highlighted the low-tier SoFIA, Intel's first integrated mobile SoC platform, and mid-range to high-range Broxton.
“I think on a like-dollars per unit, it comes down pretty dramatically over the course of 2014. And it should be relatively small... as we get into 2015,” said Smith. He predicted "a better cost structure with our own products and a better cost structure overall with the bill of materials as we enter 2015 and then work through 2015.”
Both Intel and Strauss emphasized the importance of partnerships in Intel’s mobile market success. Intel has signed long-term agreements with Lenovo, Foxconn, and others “to expand tablets and smartphones for those who will utilize Atom on the processor side as well as communications products,” an Intel spokesman said.
— Jessica Lipsky, Associate Editor, EE Times