For chipmaker Intel (NASDAQ:INTC), 2013 was a year of transition. The PC market, Intel's bread and butter, slumped as sales of tablets and smartphones exploded. Before 2013, Intel had no answer to the low-power ARM (NASDAQ:ARMH)-based chips powering essentially all mobile devices. But toward the end of the year, with the release of the Bay Trail line of processors and inexpensive Windows 8 tablets and convertible devices, Intel has finally caught up.
The coming year should be better than 2013 for Intel, with the company aiming to quadruple mobile chip sales while maintaining its dominance in the PC and server markets. AMD (NASDAQ:AMD), which is planning to launch server chips based on the ARM architecture in the second half of the year, will offer some real competition at the low end of the server market, but Intel is fighting back with low-power server chips of its own. ARM's dominance in the mobile market has proven to be a wake-up call for Intel, and 2014 will be the year that the company finally goes on the offensive.
It's clear that growth in computing devices will come from mobile devices, like tablets, over the next few years. While traditional PCs will still sell in large numbers, especially on the enterprise side, tablet shipments are expected to overtake PC shipments very soon. This shift has caught Intel by surprise, and up until recently, the company had no product capable of matching the energy-efficient ARM-based chips found in almost all tablets.
But Intel has been investing heavily in its Atom line of chips, and the release of Bay Trail earlier this year has finally put Intel on equal footing with its ARM-based competitors. Windows tablets like the Venue 8 from Dell and the T100 convertible from Asus are receiving solid reviews, and the long battery life of the devices is a testament to how far Intel has come in terms of energy-efficient design.
Intel will make serious progress in the tablet market in 2014, with the company aiming to sell 40 million Atom chips during the year. The heavy discounts and incentives being offered to OEMs for using Intel chips will almost certainly lead to a loss, but Intel can afford to subsidize its chips in order to gain a foothold in a new market. With Intel's massive resources and manufacturing expertise, there's no reason to believe that Intel's mobile chips can't eventually blow the ARM-based competition away.
With the tablet strategy in place, the next stop for Intel will be smartphones. This year will bring the launch of Intel's Merrifield smartphone platform, with the company likely to use the same subsidization strategy as it has with tablets in order to gain market share. Smartphones require an even greater focus on energy efficiency than tablets, which is probably the reason why Intel targeted tablets first. But Merrifield should finally make Intel competitive in the smartphone market. If 2014 is the year of the Intel tablet, then 2015 will be the year of the Intel smartphone.
The battle for the data center
Intel currently dominates the market for server chips, holding an astounding 95% share. Server chips have been a real bright spot for Intel recently, with PC chip sales declining and mobile chips still generating losses, and the company expects revenue from its server division to grow by 15% per year going forward. But 2014 will be the year that competitors get serious about bringing ARM-based server chips to the market, especially for low-power microservers.
While traditional server chips, like Intel's Xeon processor, are built to handle workloads requiring heavy processing, microservers are meant to handle light tasks that need to be done many times. A large array of cheap processors is better at this type of work than a small number of high-powered processors, and ARM-based chips seem to fit the bill.
AMD, after seeing its server market share all but disappear, has shifted to ARM-based server chips for its low-end offerings. In the second half of 2014, AMD plans to launch its "Seattle" server processor, its first ARM-based server chip, aimed specifically at the microserver market. The company will continue to sell x86-based chips targeting the high end of the server market.
Intel's push toward low power in the mobile market was coupled with a push toward low power in the server market as well, with Intel offering Atom-based server chips at far lower prices than its high-end Xeon chips. While ARM may manage to pick up some market share in low-end servers, the high-end market is essentially untouchable, with no ARM-based product coming close to offering the performance of Intel's Xeon chips.
The bottom line
Intel will battle ARM on two fronts in 2014. In the tablet market, and later in the smartphone market, Intel is finally going on the offensive, offering heavy incentives in order to gain market share. In the server market, the rise of microservers creates an opening for ARM, but Intel's low-power products should prevent ARM from gaining any serious foothold. Intel's strategy, which had seemed scattershot in recent years, is finally coming together, and 2014 will be the year that Intel proves that it can compete in non-PC markets.
Timothy Green has no position in any stocks mentioned. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel. 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.