After Intel's (INTC 0.06%) earnings call earlier this week, it's clear that the company's prospects have turned a corner. The PC market appears to be showing signs of continued bottoming, the data-center group has returned to double-digit growth, and the company even shipped 5 million tablet processors during Q1. But a big question that still remains, and one that investors didn't really get a satisfactory answer to on the call, is: Where are all of the Bay Trail Android tablets?
Intel's still shipping mostly 32-nanometer tablet chips?
On Intel's most recent earnings call, CEO Brian Krzanich noted that 80-90% of the tablet chips that the company shipped in the quarter (and likely plans to ship during 2014) are for Android-based systems. Given that Bay Trail (the company's 22-nanometer tablet processor) is not yet available in any Android-based systems, we come to the conclusion that Intel shipped about 4-4.5 million older, 32-nanometer tablet processors during the quarter.
Not only does this mean that Intel's Bay Trail-T isn't exactly shipping in large quantities, but it also serves to illustrate that perhaps Microsoft (MSFT +1.08%) Windows 8.1-based tablets aren't selling all that well (since most Windows tablets are powered by Intel). The lack of Bay Trail-based Android tablets is particularly troubling given that the platform launched -- with alleged Android support -- back in September 2013.
Bay Trail needs to hit Android fairly soon
Intel seems confident that it can ship 40 million tablet chips during 2014, and at the investor meeting seemed to indicate that the vast majority of these tablets would be Android based and not Windows based. This means that Intel is expecting a pretty sizable ramp in Bay Trail-powered Android tablets in the marketplace during Q2 and Q3.
From what we know so far, it looks like Intel is going after players in the China Technology ecosystem. Further, while Intel seems to have lost the Galaxy Tab socket at Samsung (NASDAQOTH: SSNLF) this round, Intel is probably going to rely on its more traditional PC OEM partners, such as ASUS and Acer, in order to drive volumes. While these names aren't as well-known as Samsung, they -- along with Intel -- are well-known brands in the PC space, which should help drive sales.
The gross margin impact kicks in during Q2, but gets worse in Q3 and Q4
Intel expects the contra-revenue associated with tablets to impact gross margins negatively by 0.5% in the coming quarter, but expects the full-year impact to be about 1.5%. This suggests that the Bay Trail ramp on Android doesn't really kick in until Q3 and Q4. But what's even more interesting is that Intel expects that bill of materials engineering will bring down the impact on a per-unit basis significantly by the end of the year.
This suggests, then, that the ramp really begins in Q3 and gets even more aggressive in Q4, as lower contra revenue per unit is offset by much higher volumes leading to the ~2% impact in these quarters. Of course, this suggests that Intel is expecting some pretty serious Android volume during these quarters as it's clear that Windows 8.1 tablets probably aren't going to be robust enough to make up most of that 40 million unit volume.
Foolish bottom line
Google's (GOOG +1.00%) Android is clearly the most important mobile operating system in the market today and it is good to see that Intel is embracing that trend. While it would be nice to see some of the Bay Trail Android design wins come to market sooner, it is clear from the numbers that Intel gave on the call that if Intel is to hit its 40 million unit target, it's going to need to do it with mostly Android this year.
