More Reasons Intel Shouldn't Quit Mobile

Another day, another analyst declares that Intel should exit mobile. Here are more reasons that'd be a bad long-term strategy.

May 7, 2014 at 11:52PM

There's been a lot of chatter from the analyst community as of late urging Intel (NASDAQ:INTC) to reconsider its venture into the realm of mobile computing. While many Intel investors believe that exiting mobile would be a deadly long-term strategic error, others tend to focus on the nearer-term financial "gain" that Intel would see if it were to quit mobile, presumably leading to a higher stock price. However, in this article, I'd like to explain another reason giving up on mobile wouldn't bring the savings many believe it will.

Let's look at the numbers
Here's the breakdown of Intel's revenue and profit per operating segment over the past several quarters and for the full years of 2012 and 2013:


Source: Intel.

Obviously, the PC Client Group, or PCCG, is extremely profitable, and the Data Center Group, or DCG, is also quite robust. The Internet of Things group is also looking like a fantastic business, and all told, these three businesses generated a hefty $17.87 billion in operating income during 2013. The eyesore, of course, is the Mobile and Communications Group, or MCG, which lost a whopping $3.148 billion in that same period.

There is more leverage here than the loss implies
The initial, knee-jerk reaction would be that if Intel were to simply shut down MCG that those savings would fall right to the bottom line and the stock would be worth more at a constant earnings multiple. Unfortunately, this is absolutely the wrong way to think about it, simply because much of the IP/chip development that goes on in MCG is leveraged quite nicely by PCCG, DCG, and IoT. In short, while mobile products aren't directly generating operating profitability, much of that R&D is leading to profitability and margin gains in other segments.

For example, the Atom CPU cores and much of the system-on-a-chip IP that's developed primarily for smartphone and tablet products are reused to build low-cost (but high-margin) PC chips, as well as micro-server, communications infrastructure, and storage system-on-a-chip products. Further, Atom-based chips largely similar to their PC and tablet counterparts are sold into the Internet of Things division in things like in-vehicle infotainment systems and point-of-sale terminals. There is a lot of leverage that comes from that mobile investment.

The loss in mobile will narrow with sales volume
Addressing the mobile question directly, it's plain as day that the loss Intel is incurring now will narrow significantly on the following drivers:

  1. Elimination of the contra-revenue support required for this year's roughly 40 million tablets, and growth in that tablet volume (this is likely to happen at the expense of the weaker ARM Holdings (NASDAQ:ARMH) vendors before it encroaches on heavyweights like Qualcomm (NASDAQ:QCOM)).
  2. A ramp of Intel's discrete LTE/LTE-Advanced discrete modems (this is probably the first real LTE competition Qualcomm is going to face).
  3. A ramp of smartphone-focused platforms (in particular, the apps processor).

So, if we make the following assumptions for 2015:

  • Intel ships 60 million tablet chips at an average platform selling price of $20.
  • Intel ships 50 million full smartphone platforms at an average price of $20.
  • Intel sells 30 million discrete modem/RF transceiver parts at an average price of $10.
  • Intel sees $600 million of legacy 2G/3G business.

Then Intel will recognize revenue of about $3.1 billion in its Mobile and Communications group. If we assume gross margins at the 45% level (they'll get better as Intel moves the high-volume parts in-house, and this is a pessimistic estimate to begin with), then assuming roughly $3.7 billion in operating expenses (which is the implied operating expenses at 40% gross margins on the current revenue base), this should lead to an operating loss of about $2.3 billion -- a healthy improvement from a $3.2 billion loss during 2013 and what is likely to be a $3.5 billion to $4.0 billion loss in 2014.

Foolish bottom line
While it's easy to just say "shut down mobile," do remember that the PC market is stagnant at best and that mobile is where the high-dollar-content incremental growth opportunities lie. If Intel wants to grow its $53 billion-a-year revenue base meaningfully, it will need to succeed in both tablets and smartphones. The loss is painful for now, but Intel investors should be confident that this is the correct strategic decision and that Intel is unlikely to give up on mobile at any point in the foreseeable future.

Are you ready to profit from this $14.4 trillion revolution?
Every investor wants to get in on revolutionary ideas before they hit it big -- like buying PC maker Dell in the late 1980s, before the consumer computing boom, or purchasing stock in e-commerce pioneer in the late 1990s, when it was nothing more than an upstart online bookstore. The problem is, most investors don't understand the key to investing in hypergrowth markets. The real trick is to find a small-cap "pure play" and then watch as it grows in explosive fashion within its industry. Our expert team of equity analysts has identified one stock that's poised to produce rocket-ship returns with the next $14.4 trillion industry. Click here to get the full story in this eye-opening report.

Ashraf Eassa owns shares of ARM Holdings and Intel. The Motley Fool recommends and Intel and owns shares of, Intel, and Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers