Microsoft’s Surface generated mixed signals. Microsoft’s foray into tablets wasn’t that huge of a financial success. The Microsoft Surface generated 1.5 million sales according to the latest Bloomberg estimate. According to the same article, Apple was able to sell 22.9 million iPads in the same period. Microsoft’s positioning with its Intel i5 processor, and office features drummed up a muted response from consumers. So much for being cool.
Intel may not manufacture chips for Apple Inc. (NASDAQ:AAPL) for quite awhile despite all the rumors surrounding Intel and Apple’s marriage in the foundry business. Apple is paying some fairly reasonable prices to Samsung and Samsung’s chips work well enough. If Apple Inc. (NASDAQ:AAPL) was to transition to a different chip manufacturer; it would go with Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM) rather than Intel. So Intel’s foundry business isn’t likely to generate any press or revenues from Apple in the foreseeable future.
Apple Inc. (NASDAQ:AAPL)’s recent quarter was difficult from a margin standpoint, which is unrelated to the foundry that Apple Inc. (NASDAQ:AAPL) chooses to manufacture chips with. Apple Inc. (NASDAQ:AAPL)’s gross margins declined from 46.5% to 37.5%, Apple’s decline in gross margins were driven by cost of sales increases from $20 billion to $27 billion while revenue growth remained essentially flat at 11% year-over-year. The iPad Mini caused the gross margins to compress which further squeezes competitors like Barnes & Noble, Inc. (NYSE:BKS), Amazon.com, Inc. (NASDAQ:AMZN), and Microsoft out of the tablet marketplace. Apple’s iPad revenues grew by 40% year-over-year.
With Intel missing out on Apple Inc. (NASDAQ:AAPL)’s success in tablets, along with Microsoft and Amazon.com, Inc. (NASDAQ:AMZN) struggling to gain any significant foothold in both the low- and high-end tablet space, Intel’s mobile strategy could turn into a financial failure.
Guidance and outlook
Intel provides guidance that the company should be able to generate revenue growth in the low single digits. Analysts on a consensus basis anticipate revenue growth of 0.70% for fiscal year 2013. Intel believes that desktop shipments will eventually stabilize. Microsoft’s new operating system may lead to a product refresh cycle that should help stabilize revenues. However, analysts on a consensus basis are expecting earnings to come in at -10.80% for the current fiscal year. Intel’s Haswell platform launch for tablets has been a disaster. The product’s performance is comparable to its competitors. If no major mobile manufacturer (outside of Microsoft) is willing to implement the Intel processors into its tablet products, Intel will not be able to recoup the R&D costs.
I’m a cautious skeptic of Intel’s performance going forward. While analysts expect earnings growth of 7.90% in 2014, I wouldn’t want to hold onto Intel. There’s no real growth story in the stock, and while the 4.11% dividend yield is extremely attractive, Intel’s earnings hinge on whether or not it can succeed in the mobile space. If it doesn’t succeed in a timely manner, investors could panic, and dump the stock. I don’t find the risk to reward ratio very appealing.
The article Apple Will Shun Intel originally appeared on Fool.com.
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