Samsung's (NASDAQOTH: SSNLF ) next generation of Galaxy Tab products, sold under the "Galaxy Tab Pro" brand, look quite impressive compared to their "non-Pro" predecessors. Each model – from the 8.4-inch to the 12.2-inch variant – a sports a super-fast Qualcomm (NASDAQ: QCOM ) Snapdragon 800 for the cellular-enabled models and an in-house Exynos processor for the Wi-Fi-only versions. Intel (NASDAQ: INTC ) didn't win a single one of these sockets, much to the chagrin of Intel-bulls everywhere.
The very real loss
This obviously stings. Samsung is one of the fastest growing tablet vendors, and thanks to its excellent cost structures and enormous brand equity it continues its meteoric rise in the vast majority of the tablet/smartphone market. With Intel's Galaxy Tab 3 10.1-inch win, many Intel bulls (including yours truly) believed that Intel had finally gained a foothold at the world's most important tablet vendors.
Unfortunately, Intel lost this socket and hasn't won any further (publicly announced) sockets over at Samsung. This loss is due both to timing issues of Intel's tablet chip released as well as the company's competitive position. To be quite blunt, there was absolutely no reason for Samsung to go ahead and use an Intel chip in any of its tablets because the latest Exynos/Snapdragon chips are simply "better" when viewed from a full-solution standpoint.
Things look difficult, but not impossible
What's interesting is that at Intel's investor meeting, management made the very bold claim that it is aiming to ship more than 40 million tablet chips next year – representing anywhere from 15%-20% of the expected tablet market next year. This is an extremely aggressive target and – given the extraordinary level of "contra revenue" that Intel is providing to get OEMs to use its Bay Trail product (which unfortunately has a bloated bill-of-materials that needs to be compensated for) – one that seems plausible.
However, if Intel is to actually achieve this target, it's going to have to do the following:
- Very aggressively pursue business at every major OEM such as ASUS, Lenovo, LG, and Acer
- Price Bay Trail aggressively (as well as continue to provide generous "contra-revenue) and convince the OEMs that future Intel chips will be worth buying (and that this year's Bay Trail problems won't recur)
- Offer extensive marketing support, particularly to promote its own brand (as well as its partners' brands) in order to gain business. Samsung and Apple are incredibly formidable, so even if Intel wins sockets at these other players, it may not be relevant if Samsung keeps eating their collective lunch
- Aggressively get new and better chips out. With Samsung, Apple, and Qualcomm moving very quickly on their chips, OEMs using Intel don't want to be at a capability/performance disadvantage. With Bay Trail, CPU performance is excellent, but its graphics performance is likely to be lacking – this issue needs to be addressed quickly in both the upcoming "Merrifield" and "Moorefield" phone/tablet processors for Android
Time is running out
It has been nearly four years since the introduction of the iPad and nearly seven years since the launch of the iPhone – both products having "revolutionized" the smartphone and computing markets. Intel needs to get into these markets in a very big way and it needs to do so very quickly. While the Apple business is forever lost (outside of a foundry deal), Samsung business could still be on the table longer-term if Intel can develop world-class chips.
Beyond that, however, Intel needs to enable these many smaller partners in a big way if it hopes to have meaningful market segment share. If Intel has the best chips, then Samsung would look pretty silly selling devices that underperform products from smaller vendors and could even be compelled to use Intel chips. However, to avoid a customer concentration issue, Intel really needs to help its partners become big players that can take share. Intel's brand can help with that.
Foolish bottom line
Do not misread this – Intel is a world-class company with world-class assets. However, the raw ingredients aren't enough to "win" the market segment share race. Intel needs to move faster – much faster – and it needs to really hit the target by using its assets to build the world's best computing chips. Intel's not quite there in tablets and is certainly a far-cry from this in smartphones, but if the song remains the same by the end of the year 2015, the odds that Intel will ever be successful here will be quite low.
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