Can Intel Sell 50 Million Smartphone Processors in 2015?

Here's why Intel has a pretty good shot of selling 50 million smartphone apps processors in 2015.

May 8, 2014 at 1:40PM

In a recent article defending Intel's (NASDAQ:INTC) decision to push onward in the mobile market, one of the assumptions that I made for Intel's 2015 mobile revenues was that the company would ship roughly 50 million integrated smartphone apps processors (most of which integrated with a cellular baseband). In this article, I'd like to justify that assumption by going a bit more in depth into the drivers behind that.

How big is the smartphone market?
During 2013, the smartphone market was about 1 billion units strong, with roughly 45% of that volume coming from Samsung (NASDAQOTH:SSNLF) and Apple (NASDAQ:AAPL) combined. So, if we assume that Intel has a solid smartphone-targeted product lineup throughout the entirety of 2015 (and this is what Intel has indicated on numerous occasions), we should assume that Intel will be able to ramp share pretty quickly throughout the year.

If we assume that the smartphone market grows about 12% during 2014 and then another 11% during 2015, then this would imply a total addressable market of about 1.3 billion units for 2015. In order to get a reasonable estimate of the average selling price of a value/mainstream smartphone processor, let's take a look at MediaTek's financial results.

How much does a mainstream mobile platform cost and what is the chip TAM?
If we look at MediaTek's results (and remember, MediaTek is the 2nd largest mobile apps processor vendor next to Qualcomm (NASDAQ:QCOM)), we see that the company is forecasting sales of about $1.8 billion at the midpoint of its guidance range. Further, the company expects to ship between 80-90 million mobile chips (implying 85 million at the midpoint). A naive division of the sales by the unit number suggests an average revenue per unit of about $21.

This represents an upper bound as MediaTek does offer products for other markets (digital TV, Blu-ray/DVD player ICs, and the like) and also sells stand-alone connectivity parts, but if we assume that 80% of MediaTek's revenue comes from mobile chip platforms, then this would imply an average selling price per platform of about $17. Assuming that MediaTek's average selling price underestimates the industry's average selling price (as Qualcomm largely owns the high end), we're looking at roughly a 1 billion unit market worth about $20 billion.

OK, how about Intel's piece?
The market in 2015 will be about 1.3 billion units, and if we assume Apple grows at a 7% CAGR and Samsung grows units at a 9% CAGR, then this leaves about 772 million non-Apple, non-Samsung units to gun for. If Intel were to capture 50 million units, this would only represent 4% of the total smartphone market and about 6.5% of the non-Apple, non-Samsung market. Given that Intel does appear to have a very competitive modem and will likely have a very competitive apps processor stack by 2015 with SoFIA and Broxton variants, this actually doesn't seem all that aggressive.

Foolish bottom line
Intel's problem in mobile has largely been a product story problem above anything else, and with a much more competitive lineup of mobile products, Intel is well positioned to gain share in smartphones and tablets. Indeed, expecting Intel to exit 2015 with about 4% of the total smartphone applications processor market (implying 6.5% of the non-Apple, non-Samsung market) doesn't seem all that aggressive at all and, quite frankly, could prove to be conservative if Intel plays its cards correctly. As always, however, time will tell.

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Ashraf Eassa owns shares of Intel. The Motley Fool recommends Apple and Intel. The Motley Fool owns shares of Apple, Intel, and Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.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.

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