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Intel (NASDAQ: INTC ) , the chipmaker known for its dominance of the PC and server microprocessor markets (and its laggard status in tablets and phones), is set to report its quarterly earnings on Oct. 15. The investment thesis is a multi-year bet on the company's massive (but late) R&D efforts to develop and sell mobile system-on-chip solutions in a bid to drive significant revenue and profit growth. Long-term investors need to eventually see signs that things are going according to plan. Following the earnings report on Oct. 15, tablets based on Intel's next-generation tablet chip will hit the market just a few days later on Oct. 18, beginning the Intel tablet story in earnest.
The tablet story begins on October 18
While Intel has released products intended for both the smartphone and tablet spaces, these products have seen fairly limited traction. However, industry observers will note that, as far as the smartphone space, Intel's market segment share is almost nonexistent, while its tablet market share sits at a much better (but still unacceptable) 4%-5%. This is largely due to the company's near-monopoly of the Windows tablet space since AMD (NASDAQ: AMD ) is largely MIA and ARM (NASDAQ: ARMH ) -based competitors' products can only run the much-less-featured Windows RT rather than full-blown Windows 8.
Interestingly, while Intel's foray into the tablet space may prove to be a negative for ARM from a sentiment standpoint, the real loser here is AMD. ARM's royalty stream from the vast majority of Samsung and Apple tablets is secure, so while share loss is never pretty, it's not likely to be material to the bottom line in the fairly near term. AMD, on the other hand, isn't as lucky. While its products also support full Windows 8 in a tablet form factor, the company's products in this space still aren't quite up to snuff, and it's going up against an Intel that designed its products specifically for low cost-pretty much blocking its traditional strategy of "win on price".
That being said, designs based on Intel's prior generation chips weren't great. A large part of this is due to the fact that the chips offered poor graphics performance (meaning low display resolutions) and middle-of-the-road CPU performance. However, the company's recently launched Atom Z3000 parts offer leadership CPU performance, high-end graphics performance, and extremely low power consumption. This means that when Windows 8.1 tablets start rolling out on Oct. 18, OEMs will be able to offer significantly more attractive designs.
It gets better by the end of the year
While this Fool is optimistic that Windows 8.1 tablet sales should be substantially better this time around, Intel would be remiss to not attack the broader market. The new Z3000 series of processors will also be available in Android tablets, albeit a month or so later. Further, Intel will be using its previous generation Android-only processors (which are the same as the previous generation Windows 8 tablet chips, but with a modern graphics engine) to attack low- to mid-range tablet designs. A look at Dell's recently announced Venue 7 and 8 tablets for $149.99 and $179.99 (powered by the Atom Z2560 and Z2580, respectively) shows that Intel isn't afraid to get down and dirty in the lower price ranges to win market share.
What about smartphones?
While Intel's tablet processor lineup looks good to go for the upcoming holiday season, its smartphone strategy needs more time. The next-generation smartphone-oriented system-on-chip products ship in Q4 2013 for launch in devices during the first quarter of 2014. While Intel's applications processors in the smartphone space have been less-than-competitive, what has held the company back from winning even a single design in the U.S. is a lack of an LTE RF and baseband solution.
The platform that Intel will be shipping in Q4 2013, codenamed Merrifield, will pair a system-on-chip (codenamed Tangier) that sports two Silvermont processor cores and a variant of Imagination Technologies' latest Series 6 GPU with Intel's own XMM 7160 LTE solution. While it is unlikely that Intel's cellular platform will be superior to Qualcomm's LTE offerings as far as features and performance, having an LTE-capable modem paired with a good applications processor means that Intel will be able to fight for – and perhaps even win – smartphones that matter.
Further, Intel has talked up its second-generation LTE modem, known as XMM 7260. This should ship in the first half of 2014 with the platform that follows Merrifield, codenamed Moorefield. If Intel can actually get XMM 7260 out the door in the first half of 2014, then it will be nearer to closing the technological gap with Qualcomm. That being said, it is worth seeing how well the Merrifield platform does before trying to look too far ahead into the future.
Foolish bottom line
Intel's tablet story begins on Oct. 18; its smartphone story will begin during the early part of 2014. While Intel is undoubtedly late to this market, there's plenty of market share to take. It's going to require great products to convince OEMs to switch, but with the latest Z3000 series of chips, it looks like things are finally in place for tablets. All that's left is for Intel to release a truly competitive smartphone platform so investors can stop wondering when the company will get into the race, and instead focus on how much of the market it's getting.
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