In order to make a truly informed investment decision, it is vitally important to understand the other side of the argument. When it comes to Intel (INTC +7.06%), the bearish argument is largely well understood, but there are some nuances -- particularly on the communications side of the equation -- that are not all that clear to many investors. While Intel's smartphone plan looks solid if the company can execute, there's one little snag that may prove to be a bit of an issue over the next year or two.
Did somebody say CDMA?
Qualcomm (QCOM +1.23%) has made a ton of money over the years with CDMA standards -- the first, cdmaOne, and its successor, known as CDMA2000. CDMA2000, in particular, is a very popular 3G standard in North America, employed by major carriers such Verizon (VZ 1.06%) and Sprint . As far as cellular modems go, only Qualcomm -- the inventor or both cdmaOne and CDMA2000 -- develops CDMA-capable chips.
This means that at least for the next year or two, Intel-based phones won't find their way into the phones intended for networks that use CDMA, rather than GSM, for 3G access. The bad news is that this locks Intel out of a bunch of U.S.-based smartphones next year on both applications processors and cellular basebands. However, it's not all doom and gloom.
Eventually, it'll be LTE-only
Verizon has expressed interest in moving to LTE-only networks at some point during 2014. This is a pretty ambitious goal, but once the company can roll out voice over LTE, or VoLTE, across its networks -- which the company expects to begin to do early next year -- there won't be much need to support CDMA any longer. That means the LTE-only phones can begin to roll out.
What's even better about this is that VoLTE actually promises to lead to much better-sounding phone calls. In short, once CDMA is dropped in favor of pure LTE networks, consumers win, and cellular-baseband vendors like Intel will be able to gain more traction against Qualcomm.
This is a near-term issue, but it's not as bad as one would think
For Intel, success in the smartphone market is a marathon, not a sprint. If Intel is stuck to only GSM/LTE networks next year, then there's still plenty of market share to gain even without CDMA support -- remember that Intel's baseband share is roughly 7%, and its apps-processor share is within rounding error of 0%).
A broad shift to LTE-only networks would really open the floodgates for more design wins, particularly in the U.S. But there's no real rush, given the size of the non-CDMA market. Long term, it will be very interesting to see how the balance of power shifts in the cellular modem space.
If CDMA support is less of a "moat" down the line than it is today, the balance could shift pretty dramatically. At any rate, Intel's lack of CDMA support isn't a long-term deal killer, but it'll be a short-term barrier to wins in some regions.
