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Intel's Cellular Modem Revenue Has Bottomed

In the broad worldwide move to LTE, chip companies that have failed to offer LTE-capable slim modems and system-on-chip products have seen cellular sales come under pressure. This is both due to a fierce average selling price environment as well as declining demand. Intel (NASDAQ: INTC  ) , which, via its acquisition of Infineon Wireless, has a sizable 3G modem business that is seeing pretty fierce year-over-year declines. The bad news is that year-on-year comparisons will look bad throughout most of 2014, but the good news is that Intel's modem revenue has bottomed.

Intel's LTE solutions begin to ramp, modem revenue bottomed
At Intel's Investor Meeting, it gave a very useful chart illustrating the projected trajectory of its modem business during 2014:

Source: Intel.

In the most recent quarter, Intel's mobile and communications group revenue came in at a paltry $156 million -- down 61% from a year earlier. You can see that reflected roughly in the chart given here. The bad news is that this chart suggests that 2014 will be down relative to 2013, but the good news is that the full year won't be down anywhere close to what the ugly Q1 numbers suggested.

Source: Intel.

Interestingly, if we assume that 2014 will be down slightly from 2013, the division should generate revenue of about $1.2 billion for 2014. By no means will that narrow the loss (the loss will widen), but for those expecting that the company's modem business will continue to deteriorate sequentially throughout 2014, this should largely dispel that notion.

The competitive gap with Qualcomm shrinks
Intel's first-generation LTE modem, the XMM 7160, isn't particularly competitive with Qualcomm's current LTE offerings, but it is a start and is finding its way into a number of designs such as the Samsung (NASDAQOTH: SSNLF  ) Galaxy Note 3 Neo and the Galaxy K Zoom. The next-generation XMM 7260, which Intel has promised will be in devices by the end of the first half of 2014, should close that competitive gap quite nicely.

Now, while Intel will briefly have an LTE-Advanced Category 6 modem before Qualcomm does, do note that Qualcomm's will be built on a leading-edge 20-nanometer process and sport a 28-nanometer RF transceiver while Intel's modem is built on 28-nanometer and sports a 65-nanometer RF transceiver. Qualcomm's should be lower power and offer more features, but it comes later and could potentially cost more as the early 20-nanometer wafers will be quite expensive while 28-nanometer wafers should be dirt cheap.

Foolish bottom line
Intel's story in cellular continues to get better, although it's clear that the company has a long way to go before its mobile and communications group gets to breakeven and then profitability. The bad news is that Intel really has no choice; it needs to be successful in mobile for financial and strategic reasons. The good news is that 2014 really should be the worst of it financially and -- if all goes as planned -- the financial losses will be but a distant memory. 

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  • Report this Comment On May 14, 2014, at 2:08 PM, raghu78 wrote:


    You are missing the core point. Discrete basebands are losing market share to integrated basebands.

    According to this Strategy Analytics report, Qualcomm, MediaTek, Intel, Broadcom and ST-Ericsson grabbed the top-five spots in the cellular baseband processor market in 2012. Based on Strategy Analytics estimates, Qualcomm led the cellular baseband market with 52 percent revenue share in 2012, followed by MediaTek with 12.5 percent revenue share and Intel with 12.3 percent revenue share.

    Based on this Strategy Analytics report, Qualcomm, MediaTek, Intel, Spreadtrum, and Broadcom captured the top-five revenue share spots in the cellular baseband processor market in 2013. Qualcomm dominated with 64 percent revenue share, followed by MediaTek with 12 percent revenue share and Intel with 8 percent revenue share.

    According to Stuart Robinson, Director of the Strategy Analytics Handset Component Technologies service, "Strategy Analytics estimates that revenue from baseband-integrated applications processors represented over 60 percent of total baseband revenue in 2013, up from 48 percent in 2012. Most baseband vendors have now transitioned their portfolios to include integrated products in order to boost their revenue share.

    So you see Intel's 8% discrete baseband market share in 2013 is down from 12.3% in 2012 because integrated basebands went up from 48% in 2012 to 60% in 2013. Incidentally this 12% increase is the exact % by which Qualcomm market share grew in 2013. So Qualcomm grew at the expense of Intel and others. This trend will continue in 2014 as Mediatek too has integrated LTE for 2014 while Qualcomm continues to dominate and grow market share as it has a top to bottom product stack with integrated basebands.

    Also for discrete basebands Qualcomm's 20nm modems with 28nm RF transceivers are more attractive as they will be more power efficient. since these discrete basebands are used in high end tablets customers would prefer to get better power efficiency even at higher cost. So no Intel's cellular revenue has not bottomed. We have to wait and see. My guess is the bottoming out happens in late 2014 and then it will rise in 2015 with SOFIA 3G / LTE.

  • Report this Comment On May 14, 2014, at 4:27 PM, TMFAeassa wrote:


    " So no Intel's cellular revenue has not bottomed. "

    Do you believe that Intel's management outright lied with the slide that they presented at Investor Meeting?

  • Report this Comment On May 14, 2014, at 10:44 PM, raghu78 wrote:


    So what is your explanation for the market share figures which show loss of market share of discrete baseband to integrated baseband in 2013. The important fact is all the market share gains has directly gone to Qualcomm which is the only company with integrated baseband from top to bottom. In 2014 Mediatek too has integrated LTE. Intel's Q1 2014 shows the bleeding is getting worse. How does Intel intend to stop the loss of market share to integrated basebands in 2014 ? They have not addressed that at all.

    So Intel's investors ought to ask Intel serious questions on their statements. Investors need to do their own research and not take whatever Intel tells on face value. Integrated LTE for Intel is a 2015 phenomenon so where does that leave 2014. Anyway lets see how 2014 plays out and then see how well Intel recovers in 2015.

  • Report this Comment On May 15, 2014, at 6:42 AM, TMFAeassa wrote:


    " Intel's Q1 2014 shows the bleeding is getting worse. How does Intel intend to stop the loss of market share to integrated basebands in 2014 ? They have not addressed that at all."

    You are missing the point. Intel's chart is based explicitly on management claiming that they have won several key designs with XMM 7160/7260 (discrete LTE/LTE-A) that will ramp throughout the year.

    There is a market for discrete LTE basebands (particularly at Samsung) and Intel is apparently addressing it. I would not be surprised to see XMM 7260 in particular show up in quite a number of designs as it does look like a strong part, esp. since Qualcomm won't have anything comparable integrated until 2015.

  • Report this Comment On May 15, 2014, at 1:29 PM, raghu78 wrote:


    "There is a market for discrete LTE basebands (particularly at Samsung) and Intel is apparently addressing it."

    yeah but the market for discrete LTE basebands is shrinking. since integrated is cannibalizing discrete and Intel competes with Qualcomm and others for discrete baseband you can't tell for sure if Intel will take discrete baseband marketshare from Qualcomm and the rest in a shrinking space.

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Ashraf Eassa

Ashraf Eassa is a technology specialist with The Motley Fool. He writes mostly about technology stocks, but is especially interested in anything related to chips -- the semiconductor kind, that is. Follow him on Twitter:

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