Investment thesis – Intel’s current market share in the tablet category
For long, Intel’s potential in this category has been underestimated. But statistics show something else. As per a report by Strategy Analytics, Intel commands a 90% market share of Windows tablets. And Windows tablets have a decent market share of 7.5% in the tablet segment.
Intel Corporation (NASDAQ:INTC) was a zilch contributor in the tablet segment in 2012. But some green shoots did sprout in 2013. Given that the PC market is weakening, any start that Windows tablets have this year will be good for Microsoft. And that will be a possible revenue generator for Intel’s Silvermont SoC.
Smartphone growth rate for 2013 and beyond
Research firm ABI pegs smartphone growth for 2013 at 44%. This means by the end of 2013, at least a billion and a half smartphones will be shipped. Most of them will be Android, followed by Apple iOS and Windows Phone.
Smartphone OS | Growth forecast for the year 2013 |
Android | 798 million |
Apple’s iOS | 294 million |
Windows Phone | 45 million |
Source: ABI Research
How will the Silvermont benefit Intel investors
With declining PC sales, the future of the semiconductor industry lies in the mobile space. As Intel investors are sadly aware, that behemoth did take a long time to come around to working in the mobile and smartphone domain. Meanwhile, smaller competitors picked up pace and went places. ARM licensees Qualcomm and NVIDIA dominate the space right now.
With the Silvermont, Intel has a fighting chance to compete with this trio. This is perhaps Intel’s best offering in the mobile (smartphone and tablet) space. Right after Intel announced this, numerous analysts from a long list of research firms started predicting good tidings for Intel’s stock over the coming months, based on Silvermont’s expected performance. Joseph Moore of Morgan Stanley valued Intel bullishly in his model. He makes an EPS estimate of $0.05 riding on the back of the Atom processor alone. Although he does not specify what part Silvermont will play in the Atom shipments, I believe he is cautiously pointing it out to us that since Silvermont represents the future of Atom, it should form a lion’s share of all Atom shipments, and therefore directly become responsible for a major part of that estimated EPS. He expects $722 million and $1 billion in Atom shipments in 2014 and 2015, respectively; with what I think I see in Intel’s Silvermont, I think that calculation is slightly pessimistic, if anything.
Conclusion
The premise is pretty clear. All that Intel wants to do is to replace ARM processors in smartphones and tablets with its own. ARM Holdings plc (ADR) (NASDAQ:ARMH) held more than 95% of the mobile processor market till a couple of years ago. And it is still in the dominant position. Has Intel come a touch late? If Intel hopes to “replace” ARM Holdings plc (ADR) (NASDAQ:ARMH)’s processors, will ARM see eye to eye? If someone asked me what the investment potential for the Silvermont is, I’d ask them to wait a little. However, I foresee Intel as a very good long term buy at dips, given the aggressive way it has entered the mobile/smartphone market in the last couple of years.
The article How Good Is Intel’s Secret Weapon? originally appeared on Fool.com and is written by Veeksha Rao.
Veeksha Rao P has no position in any stocks mentioned. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel and Qualcomm. Veeksha is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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