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Intel’s Woes Are Far From Over

April 26, 2014 | About:

Industry giant Intel (NASDAQ:INTC) continues to suffer from the fallback of losing Samsung’s (SSNLF) business to Qualcomm (NASDAQ:QCOM) as stocks continue to dip, worrying investors. Earlier this year, Samsung announced that it would discontinue using Intel’s line of Atom processor’s in favor of its biggest rival Qualcomm’s Snapdragon 400. The decision was a big blow to company’s expectations and poses a serious threat to the 40-million chip sale target announced.

Decline of first quarter revenues

Intel released its first quarter earnings on April 15, and the numbers left even the most optimist investors a tad disappointed. Gross revenue was down 8% from the fourth quarter of last year to $12.8 million, while net income was down 26% in comparison to the same quarter.

The year-over-year earnings hardly fared better. Mobile and Communications, the group which is comprised of tablets, smartphones and other mobile-centric products, showed a 61% dip in revenue. In fact, the only reason Intel even showed a few positive numbers was because the management chose to modify the company’s financial reporting divisions.

Intel sold 5 million chipsets during the quarter, a fact which does not make us optimistic about its 40-million goal. Considering a year has only four quarters, the math does not look promising for Intel.

The back-up plan

Although things look bleak for Intel, it, by no means, signifies curtain-fall. The main reason the Mobile and Communications group shows declining revenue is because Intel is subsidizing the cost of its tablet chips. Once Intel sufficiently lowers the cost of its chips, the fall will dwindle, company officials claimed.

Moreover, Intel has yet to launch the Bay Trail, the newest addition to its Atom family. This means that the first quarter results were based on outdated technology, and the company may still be able to change the game.

ASUS, the world’s third largest tablet vendor, has already jumped in the Bay Trail band wagon. It will be launching Asus ME176 powered by the Atom Z3745. The Z3745 is a low power SoC (system-on-chip) processor based on the Bay Trail-T platform. Built on the 22 nanometer Silvermont architecture, it has 4 cores and 4 threads. The Ivy Bridge type GPU has a maximum frequency of 778MHz. It is ideal for sub-$150 devices and experts expect that the low price may inspire Chinese companies like Onda, Cube, Teclast and Ramos to take note of this.

Furthermore, Intel is looking towards long term achievements. Intel’s tablet plan is only the first step to a more elaborate strategy. The mobile group cannot reap profits by just focusing on tablets, and it is clear where Intel’s sights lie.

Parting Thoughts

Intel’s woes are far from over. Even if it manages to profit largely from the Bay Trail SoCs, it still has tough competition from companies like Allwinner and Rockchip which also sell chips at the $5 level in order to entice companies like Onda and Ramos. Krzanich is also targeting 40-million chip sale and is willing to sell SoCs at less than cost to achieve this goal. Intel’s main competitor, Qualcomm, too poses a serious threat.

Although we think Intel will pull through, no one expects for it to happen in the near future. 2015-2016 is the ideal framework for the company and we will be eagerly waiting for it to shine.

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