Microsoft (NASDAQ: MSFT ) held its Mobile World Congress pre-show presentation ahead of the start of the conference proper. What's interesting is that Microsoft seems to be using Qualcomm (NASDAQ: QCOM ) Snapdragon system-on-chip platforms exclusively for its phone hardware, with Microsoft's most well-known partner, Intel (NASDAQ: INTC ) , still completely missing from the Windows Phone. Is Intel making a fatal mistake by simply not supporting Windows Phone?
Not fatal, but TAM restriction is never good
Love 'em or hate 'em, Microsoft is a cash-rich, extremely powerful company that will eventually gain meaningful traction in handsets either via its acquisition of Nokia or via licensing of its OS to partners. The only thing that is really up for debate at this point is the magnitude of Microsoft's success in this market, but at any rate, the baseline assumption is that Microsoft will eventually have >= 10% of the smartphone market.
Now, smartphones are about 1 billion units today and will likely grow to over 1.5 billion units by 2017, according to market research firm IDC. Apple (NASDAQ: AAPL ) , which designs its own chips, will probably account for 10-15% of unit volumes in 2017, and Samsung (NASDAQOTH: SSNLF ) , which designs and builds its own chips (and chips for Intel's competitors), will probably have 25-30%.
If Windows Phone scores 10% of the market (and it remains Qualcomm-only), then this really limits Intel's potential served addressable market to about 45%-55% of the total smartphone market. This isn't insignificant, but just how much of the remaining TAM can Intel really capture against the likes of Qualcomm, MediaTek, Marvell, NVIDIA and many others? It's not a good idea to leave any stone unturned.
So, what's the deal?
The real question at this point is whether the lack of Intel being inside the Windows Phone is a result of Intel simply not choosing to support Windows Phone at this time as it gets its Android software stack together or if Microsoft is actively shutting Intel out. Interestingly enough, according to a 2012 interview, the GM of Intel's Mobile and Communications group had this to say in a 2012 interview:
We would be [interested] when we see that this market has a good chance to return our money that we have invested into this... Our roadmap has devices that can support Windows also on phones. So we can do that. The hooks for doing that [are] there.
Clearly, Intel is more focused on the larger Android market today, although it is important for the company to – once it has its Android act together – more aggressively pursue Windows Phone when it is able to. Many of Intel's problems have stemmed from the company simply "waiting" for a market to grow up before deciding that it is worth the development effort.
Foolish bottom line
Of course it makes sense for Intel to target Android first and foremost, but Microsoft is a powerful company that is likely to make some pretty serious inroads into the smartphone market. It is imperative that Intel keep the discussion lines open with Microsoft so that when Intel's products are finally leadership on all of the vectors that count, it will be able to compete for – and win – Windows Phone based designs.
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