Intel (INTC -1.21%) is by and large still a PC company -- the giant chipmaker derived 62% of its revenue from the PC market in the first quarter of fiscal 2014. However, the company has been slowly lowering its dependence on this declining market. Its PC-related revenue in 2012 stood at 65% of its total. Intel has a strong presence in the server microprocessor market too, where its Atom microprocessors have helped it dominate the rapidly growing embedded systems market.

The company's huge success in manufacturing PC microprocessors has, unfortunately, not extended into the smartphone and tablet markets, where Qualcomm (QCOM -4.53%) and Samsung dominate. The mobile and communication segment currently accounts for less than 3% of Intel's overall revenue. This failure has been partly to blame for Intel's slow top-line growth in recent times.






Tablets (Mil)





Growth (%)





Smartphones (Mil)





Growth (%)





PCs (Mil)





Growth (%)





Source:IDC Press Releases, Gartner

Intel has, however, been making significant strides in the smartphone and tablet market that will not only help the company become an important mobile player, but also help accelerate its top-line growth. Let's have a look at some of these:

New chips to spur new growth
Intel's mobile and communications revenue fell 22% from $1.8 billion to $1.4 billion between 2012 and 2013. In the first quarter of fiscal 2014, Intel realized revenue of just $156 million from this segment, 61% less than its figure for the comparable quarter in 2013. This drastic decline has been orchestrated by the falls in feature phones and 2G/3G and the transition to LTE solutions.

LTE is showing the strongest growth among the various mobile technologies that dominate today's market. Nvidia estimates that the LTE market will grow more than 100% by 2016.

Intel introduced a series of new chip products and updates during the Mobile World Congress in February this year. The company's first LTE solution, the 7160, now powers the Asus Fonepad 7 and the Samsung Galaxy Note 3 Neo. This LTE chip had previously only been available on the Samsung Galaxy Tab 3. Intel expects to start shipping the CAT 6 LTE solution, aka the 7260, this quarter.

Additionally, Intel showcased its next-gen Atom SoC products -- the Atom Z34 SoC family (Merrifield), the Atom Z35 line (Moorefield), Cherry Trail, and SoFIA. The Merrifield chips will start shipping in smartphones in the current quarter, while Moorefield will make its market debut in the second half of the current fiscal year. Both Cherry Trail and SoFIA will become available toward the end of the current year.

Intel also announced multi-year, multi-device agreements with Lenovo, Asus, Dell, and Foxconn to expand the availability of out-of-base tablets and smartphones.

Intel's multimode, multiband 4G LTE solution (XMM7160) started shipping in September 2013. Prior to this, the company only shipped single-mode 4G-LTE solutions. The company introduced a next-gen LTE cellular modem and Atom chipset for mobile devices -- the XMM 7260. The chip will be available in every large LTE market in the current quarter. It will sell the XMM 7260 mobile device makers as a stand-alone unit, with integrated chips likely becoming available toward the end of the year thanks to the launch of the SoFIA chip.

Subsidies to accelerate tablet growth, contra-revenue to fall
IDC predicts that tablet shipments will surpass PC shipments by the end of 2015 with growth from 227 million units shipped in 2013 to 406 million units in 2017, a compound annual growth rate of 15.6%.

Intel announced during its first-quarter 2014 earnings call that it had shipped 5 million tablet chips during the quarter and was on target to ship 40 million tablet ships in fiscal 2014. The company managed to ship just 10 million tablet chips for the whole of 2013.

Intel has been offering heavy subsidies to chip manufacturers to entice them to use its new chips in their future tablets. For instance, Intel is paying tablet makers to cover the additional BOM, or bill of materials, costs of using its Bay Trail chips instead of ARM-based processors. This has resulted in the company incurring contra-revenue charges on its accounts, which badly impacts its bottom line. Additionally, the contra-revenue often offsets the ramp ups in the company's tablet sales.

However, Intel believes that it will no longer have to subsidize tablet manufacturers once its products hit the markets toward the end of 2014. For instance, a Broxton tablet will have a BOM of about $20 less than that of a Bay Trail tablet. Additionally, greater chip integration using SoFIA, as well as smaller die sizes, will further enhance the cost savings.

Stabilizing PC market
As an aside, I think it's worth mentioning that the beleaguered PC market is now showing strong signs of being close to bottoming out. Intel's PC Client Group revenue declined 1% in the first quarter while PC shipments declined 4.4% globally. The company is also seeing stronger demand in emerging markets.

Foolish takeaway
Intel looks set to dominate the important mobile market soon which gives it better growth runways as it transitions from the PC to the mobile era. This makes it a strong long-term growth bet, and a good investment.