When Intel (NASDAQ: INTC ) announced that its next-generation tablet platform, known as Bay Trail, would be launching around the 2013 holiday on both Android and Windows 8.1 platforms, it seemed that the company was going to strengthen its already dominant position in Windows tablets and start to make some real inroads on Android. Well, the holidays have gone, and while Intel's Bay Trail successfully attacked the Windows market, Bay Trail on Android is still missing-in-action.
On Intel's most recent conference call, CEO Brian Krzanich claimed that Bay Trail was originally meant to be a Windows-only platform and that the decision to bring the platform to Android was made in the "middle of the year." This is actually a bit odd considering that Intel showed reference designs running Android as early as January 2013.
Whatever the explanation is, the point is that Intel missed the holiday selling season on Android with Bay Trail. Now Intel is talking up trying to sell these parts into the "value" segment of the tablet market beginning in the second quarter of 2014. While Bay Trail will be a very high performance part in the $75 to $150 segment of the tablet market, the problem is that this is a chip with a die size commensurate with a high-end platform (i.e. more expensive to make) -- meaning that there's a gross margin hit.
Another real problem is that the actual bill of materials, or BoM, for the platform, (the components that come on the board that the chip goes into), is quite high. Intel will be bringing this down over the course of the year, but until that happens, it will essentially be providing subsidies to "equalize" the bill of materials in order to drive adoption of its products.
Bay Trail will do its job, but profitability comes next year
This year, Qualcomm (NASDAQ: QCOM ) and NVIDIA (NASDAQ: NVDA ) will be launching some pretty hefty high-end tablet designs. The former's Snapdragon 805 and the latter's Tegra K1 should offer some exceptional graphics performance on top of what should be quite competitive CPU performance. Bay Trail could actually have a CPU performance/power lead, but when it comes to graphics and the other IP blocks (image signal processor, video encoder/decoder, etc.), Bay Trail is likely to be a laggard.
That said, Intel finally strikes back with its next-generation Cherry Trail product. From the leaks, it looks like this part should at least quadruple graphics performance from Bay Trail, sport CPUs clocked about 12.5% higher (the CPUs will likely do more work per clock), and should improve the rest of the chip, to boot. While NVIDIA and Qualcomm are unlikely to stand still, Intel will have a significant transistor lead that -- if utilized correctly -- should translate into product performance and power leadership.
More importantly, Intel claims that the BoM issues will be corrected over the course of 2014 with 2015's offerings completely eliminating BoM deficiencies. If Intel can step up its game with Cherry Trail, then it stands to reason that any tablet upside during the fourth quarter could actually be gross margin accretive.
Foolish bottom line
Missing the 2013 holiday selling season with Bay Trail has relegated this part to the low end for the 2014 selling season, at least on Android. While this is clearly sub-optimal, the important thing for Intel is to gain share in tablets to establish it as a viable alternative to the various ARM suppliers from a software compatibility standpoint. By late 2014, Intel could finally become the player in tablets and phones that many investors have expected since its rosy projections given at the 2012 Investor Meeting.