Analyst advises Intel to give up on mobility

Credit: Image credit: flickr/brian carlson

Intel has spun its wheels for years now trying to get some traction with the mobile market, to no avail. Now one financial analyst is advising Intel to throw in the towel. JP Morgan is the first, and likely not the last, financial advisory firm to call on Intel to shut down its mobile and communications group to improve overall profitability.

"We continue to believe Intel will lose money and not gain material EPS from tablets or smartphones due to the disadvantages of x86 versus ARM and overall low profitability of the tablet and handset processor market. If Intel were to shut down its mobile business, we estimate it could unlock roughly $0.50 in 2015 EPS," wrote Christopher Danely in a research note.

"We continue to believe mobile is a money pit for Intel," he added.

The Mobile and Communications Group at Intel suffered a $3.1 billion operating loss in 2013 and another $929 million loss in Q1 2014. I said a few weeks ago these kinds of losses would not go unnoticed, even for a company with a strong bottom line like Intel.

As I said last month in a look at Intel's earnings, CEO Brian Krzanich plans to sell 40 million tablet processors this year and plans to do it via a "contra revenue" approach of selling lots of chips to low-cost white box Chinese tablet makers and take a loss. Intel plans to provide Shenzhen-based tablet producers $5 Bay Trail SoCs to build white box tablets and those tablets could account for half of the tablet sales this year.

But at what cost? A billion dollar loss for the quarter? The Intel board and major investors will be calling Paul Otellini out of retirement if that happens. This sort of give-away model worked well for Microsoft, but software has a different dynamic than hardware.

I said it then and I'll say it again. Intel's failure to gain traction with ARM in mobility has almost nothing to do with technology. Intel has closed power and performance gap. No one has won an engineering war with Intel in the long-term, that I can recall.

Only one technological hurdle remains for Intel, and that's putting the LTE modem on its Atom SoC. Qualcomm's and Samsung's SoCs have the LTE built into the chip, and that makes a big difference. Intel does have the technology from when it bought Infineon a few years back and is rapidly working on an Atom SoC with LTE native. It should have a SoC with integrated LTE by the end of this year.

But even there, Intel's real problem is the handset makers don't want to let the company take over that market like it did PCs and so they are shunning it. Intel has apparently done a great deal of work with handset makers on designing prototypes, showing them power efficiency tricks, and then the OEM goes and signs on with an ARM licensee. So what's Intel to do, bust down the doors? It can't force OEMs to buy if they won't.

Unless something changes, Intel will have to throw in the towel on mobility and just focus on the computer market. That market won't go away and I still think tablets are in for an implosion. Give them a few years, when batteries start to die on tablets loaded with work and personal data and people find they can't replace the battery.

Intel could still drive some real PC innovation, because the only vendor who seems to be trying is Lenovo. And the market for the Internet of Things is big enough that maybe they won't be shunned there. But the mobility market is shying away from Intel, and it has to be reasonable about how much pain it can take. Don't be in the least bit surprised if more analysts follow Morgan's lead and tell Intel to get out of the business.

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