Over at Seeking Alpha, contributor Alcaraz Research penned the piece Microsoft Office For iPad Is Toxic to Intel. The main thrust of the article is that Microsoft (NASDAQ:MSFT) Office is a major selling point for Intel-based tablets running Windows and therefore Intel's goal of more than 40 million Intel (NASDAQ:INTC)-powered tablets shipped in 2014 is unrealistic. However, there are a number of flaws with this argument.
The corporate buyer argument
The main thrust of the argument presented by the author is that if corporate buyers are able to run "full" Office (the Office that was released isn't quite full Office, for the record) on an Apple (NASDAQ:AAPL) iOS device, then this significantly damages the value proposition for Intel-based tablets in the enterprise running Windows. However, this doesn't make a whole lot of sense.
For corporate users who only use their machines for Word and PowerPoint, then an iPad Air coupled with a third-party keyboard could prove to be a "sufficient" productivity machine. However, does it really stand to reason that the majority of corporate buyers could really replace their Windows-based machines that run all of their Windows-only programs with an iPad just because it has Office?
Windows 2-in-1s are still a compelling value proposition
Working under the assumption that the majority of corporate buyers need a Windows-based PC as part of their workflow, and further assuming that an iPad in this case is a secondary device in the corporate world, the Windows 2-in-1 value proposition is still quite intact. From a corporate perspective, Intel has two principal advantages:
- Core-based convertible machines for users that need much more performance than what the iPad can provide, especially for heavy multitasking and running Windows-only applications. Corporate buyers will likely pay a premium for a device that can function as both a tablet and a laptop as this simplifies things from an IT perspective (and Intel gets to sell a higher value chip).
- Atom-based convertible machines for users that don't need ultra-high performance, but at the same time do need both a full PC and a fanless, iPad-like tablet in the same device.
In short, Intel can offer products that give the corporate user the "best of both worlds" with Core based tablets and -- for buyers with less intensive performance needs -- Atom based devices that are thinner and more portable but at the same time offer good performance and the full Windows software stack. An iPad with MS Office doesn't fundamentally change the equation.
Intel can't compete in cheap tablets?
Another major thrust of the argument from the author is that Intel can't compete in the low end of the Android tablet market against the likes of MediaTek and Allwinner. This is a puzzling argument that has no basis in reality. The likes of MediaTek and Allwinner build their chips at external foundries such as TSMC (NYSE:TSM), which means they need to pay TSMC for the wafer and the roughly 40% margin on top of the wafer cost.
Intel, on the other hand, builds its chips at in-house manufacturing plants -- the same ones that build the company's high ASP/margin PC/server CPUs. So, not only does Intel get to "keep" the design margin that the fabless vendors get to keep, but it keeps the margin that the foundry keeps. In short, if anybody can win a price war long term, it's not MediaTek or Allwinner, it's Intel.
Foolish bottom line
While some might argue that Microsoft Office for iPad is "toxic" to Intel, and while this may negatively impact Intel-powered Microsoft-based tablet sales, the two key points to take away are the following:
- Microsoft 2-in-1 devices for corporate/enterprise buyers differentiate themselves by more than just Office support.
- Intel is likely to have a strong future on Android as well (in fact, the majority of Intel-based tablets will probably be on Android long term).
The characterization of Office on iPad as "toxic" to Intel is likely unjustified.