At Intel's (NASDAQ:INTC) investor meeting back in November 2013, CEO Brian Krzanich stood up and told analysts and investors alike that the company planned to ship 40 million tablet processors during 2014. But a rumor from Digitimes Research claims that Intel is expected to hit just 31.15 million tablet processors during 2014.
The following may be a bold claim, but here's why investing based on this rumor may be a bit premature.
Intel's new management underpromises and overdelivers
Intel's new leadership team understands how this game is played: underpromise, overdeliver. For example, at the 2013 Investor Meeting, Intel laid out expectations that its PC business would see sales decline about 5% (but cost controls would keep operating profit flat) relative to 2013 levels.
Even when Intel reported its first-quarter results, and PC shipments actually grew year over year, the company stuck to its forecast that PCs would be down. This turned out to not be the case as the company preannounced a whopper of an upside surprise on June 12, calling for Q2 revenues of $13.7 billion at the midpoint, up from prior expectations of $13 billion.
Why would Intel miss the tablet target?
Given that the new management team seems to really understand how to manage expectations, it's hard to see the company "missing" the 40 million tablet goal. Sure, the ARM (NASDAQ:ARMH) based vendors aren't sitting still (and ARM isn't going to lose the Apple and much of the Samsung businesses, either), but the Intel-based designs from a variety of vendors look very compelling.
Further, Intel's president, Renee James, claimed that there are 130 Intel-based Android and Windows tablets are debuting this year (with about a dozen launching in the early June timeframe). While there is always unpredictability when it comes to sell-through of consumer devices, it's unlikely that the 40 million number is at the high end of Intel's forecast range -- it's probably a conservative number.
Is tablet success for Intel bad news for ARM?
As an ARM shareholder as well as an Intel shareholder, I'm interested in figuring out if this push from Intel is likely to materially impact ARM's earnings. The answer is "probably not" in the near term, particularly as Intel is largely absent from smartphones this year. But it will be worth seeing what kind of tablet and smartphone goals that Intel has planned for 2015.
If Intel announces an aggressive plan to take meaningful smartphone apps processor share during 2015, then I would very seriously reconsider my position in ARM (which I own essentially on a royalty rate growth thesis as the market transitions to ARMv8, big.LITTLE, and Mali graphics) as the smartphone market is a pretty significant part of ARM's recent success.
Further, if Intel decides to target the lower end players like MediaTek -- which typically have more ARM royalty-bearing content (Mali GPU, physical IP) than the higher end of the market (though this is offset by lower selling prices) -- this could actually be material over the next couple of years.
Foolish bottom line
At the end of the day, I find it very unlikely that Intel is going to miss its 40 million tablet unit target, simply because Intel's management seems to understand that playing it safe when guiding for these kinds of goals is usually the best way to go.