Intel (INTC) is on a roll. After solid first-quarter results, Intel's shares rose as it outpaced Wall Street’s estimates on both top and bottom lines. Looking ahead, Intel is focusing on the tablet market. The company’s strong position can be seen by a good improvement in revenue even when the PC market was on the decline. Now since the PC market is expected to improve, Intel's performance should continue improving. But there are certain concerns as well.
A slowdown in the cards
It would not be wise for Intel to only focus on the tablet market. As per the latest reports, the tablet market is expected to decline going forward. However, if the tablet market manages to survive the hiccups, Intel will definitely profit from it. On the other hand, Intel faces stiff competition from peers such as Qualcomm, which is also moving to capture the tablet market.
According to the International Data Corporation's Worldwide Quarterly Tablet Tracker, the total tablet market, inclusive of both tablets and 2-in-1 devices, is expected to grow 19.4% in 2014, down from a growth rate of 51.6% in 2013. IDC reduced the 2014 forecast by 3.6% from its previous projection to 260.9 million units worldwide. The reduction in the short-term forecast was due to slowing consumer purchases, as hardware iterations slow and the installed base, particularly in mature markets, is growing.
So, this report presents an image of a declining tablet market. Hence, Intel should watch its moves. Besides this, the company saw good traction in mobile unit sales.
The way forward
More chips doesn’t mean more revenue. The chip maker is finding it difficult to catch up with mobile leader Qualcomm, which excels in this business with some giant customers in its camp such as Apple. Intel, on the other hand, has been slow in adapting chips for smartphones and tablets, and as a result, it posted a revenue drop of 61% to $156 million in this segment.
Intel had moved 10 million tablet chips last year. Even though the company has moved half of last year's shipments in the previous quarter, its revenue isn't increasing. Since Intel is heavily subsidizing manufacturers' costs to include its components in their future tablets, its revenue isn't going up.
Since the tablet market is declining, Intel might face tough times to recoup the heavy expenditure that it has made in this market.
A potent challenge
Intel is facing competition in this segment from Qualcomm, which is an important and strong player in this segment. It might be tough for Intel to dominate Qualcomm. Qualcomm is a well-known supplier with key devices such as Google Nexus 7 2013 and Amazon Kindle Fire HDX which are driving its market share. Also, according to the latest news from Microsoft's camp, the company will be using Qualcomm's processors in a smaller version of its Surface tablet.
It is clear that Microsoft shares a good professional relationship with Qualcomm. Many of its gadgets use Qualcomm chips. It is bringing in the new Surface tablet in competition with the iPad mini, which also comes loaded with a Qualcomm chip.
Hence, Qualcomm looks to be in a better position. As Microsoft is well positioned to compete with Apple’s iPad mini, and the device from Microsoft is expected to be a higher end model at a competent price, Intel can miss out on a solid opportunity.
Intel is facing tough times with the declining tablet market. Though its prospects in the mobile segment look strong, yet it might fail to gain traction in the future. Further, Qualcomm carries better prospects, and also has a strong relationship with Microsoft. So, investors should consider Qualcomm over Intel for now.