It looks like, its kind of a zero sum game for Intel... If intel wins the 30$ mobile CPU race by competing with ARM in speed, it will lose its 300$ notebook/desktop CPU business as people will have no/less reason to buy a notebook, which makes much higher margins for Intel.
Intel's best option is to compete with ARM only in power consumption, by keeping its mobile CPU performance at the same level as of ARM's topline. Thisway if the competition becomes mostly about power consumption, then there will be a safe gap between performance of a mobile device and notebook that people will still feel the need for a more powerful notebook/desktop.
"fast growing ultra-mobile market segment": I see the statistics on the growing mobile/tablet market all the time. But, it is becoming very evident in my highly techie family. Both parents have moved exclusively to laptops/smartphones and both teenagers are using tablets. The desktop workhorses in our home/office seem to only be used for gaming now...The importance of this market really can no longer be ignored.
Remarkably, Intel shares have been in the same trading range (give or take $5) since the recession began. They're now back at 2009 levels, in the middle of that range. That's dead money for investors and the challenges facing the company are widely known. Still, one has to look at the broader tech sector to gain a full appreciation for that is happening. Here's a tweet this afternoon from Trish Regan over at MarketWatch.com. It's a good question she asks:
I was surprised by the drop in the capex forecast. With all Intel has going, I think a lot of people hoped it would hold steady or go the other way. It's a big blow to the equipment industry that Intel is taking $1 billion off the table.
Zero sum game is a very interesting thought of the tablet and pc market. If it is indeed true or just close to the reality, what will Intel do?
The fact is the powerful the CPU is; the fewer servers will be used. Today webserver can server way more connections than those used 10, 15 years ago. Virtualization certanly is one of the biggest contributors to the fall of sales.
Gaming is used to being one of the driving force of an upgrade. With the popularity of mobile gaming (tablet and smartphone), I can see hi-end games get hitted. The trend of game has been changing as well that game with social networking content trends to gain more attention than the "old-fashion" shooting game or RPG.
With all these factors in place, the fall of revenue and profit seem to be inevitable. There seems to be a while for CPU market to come back. In the meantime, what will Intel do?
Using Intel's guidance for 3Q13 at +5% and flat for the entire year, the company's 4Q/3Q growth this year needs to be +7%. Considering Intel's performance in the fourth quarter over the past three years, +3% in 2010, -2% in 2011, and 0% in 2012, this guidance looks very optimistic!
Daleste: That's a really good point. $2 bln isn't chump change. The question is can it be sustained and improved over the long term. We've seen big tech companies shrink to almost nothing and come back (Apple, ca. 1998) and we've seen others just shrink and shrink (Yahoo). But I tend to think Intel doesn't fall into either camp. I smell a spinoff coming up there, and maybe at HP, too.
BMC: Great analysis. Thank you for working the numbers. I concur it seems highly doubtful that Intel could pick up that kind of growth in the latter half of this year -- there just doesn't seem to be anything in the Western Hemisphere growing at that rate.