Last year, Intel (INTC 2.42%) held its 2013 investor meeting. At this investor meeting, Intel's management talked about how many tablet chips it planned to ship during 2014. Further, CFO Stacy Smith discussed the general trend that management expected in the sales of stand-alone cellular modems, particularly as its LTE and LTE-Advanced solutions began to bring in significant revenue.
Notably absent at that investor meeting was any prediction for smartphone applications processor shipments. This is likely due to the fact that design wins for smartphones and tablets are generally worked out pretty significantly in advance. And, unsurprisingly, it doesn't seem that Intel won even a single smartphone design with its Atom Z3400 and Z3500 series of processors.
In fact, CEO Brian Krzanich pointed out in a Sept. 9 PCWorld interview that he would be able to publicly set a target for Intel smartphone processor shipments either in November or December. My expectation is that management will have, at the very least, a preliminary number in place by the Nov. 20 investor meeting.
Who would buy Intel chips?
In that same PCWorld interview, Krzanich gave the following hints:
- Intel should have at least six smartphone manufacturers lined up to use the company's phone chips.
- Krzanich noted that he would "really like to avoid" contra-revenue-like issues with its 2015 products. This implies Intel's 2015 smartphone products will have competitive platform bill of materials costs (as stated at the 2013 investor meeting).
- Krzanich talked up SoFIA 3G and SoFIA LTE for low-cost smartphones. Not a lot of emphasis on the higher end "Broxton' chip.
My guess is that among those six smartphone manufacturers, Intel will score design wins at the following:
- Lenovo
- Samsung
- ZTE
- ASUS
In particular, I would bet on Lenovo due to the fact that the two have already announced a "multi-year, multi-device" agreement for smartphones and tablets. ZTE has used Intel chips in the past and may be willing to give Intel another chance now that its product portfolio and roadmap are, perhaps, more competitive.
ASUS, too, already uses Intel's chips and, like Lenovo, has a multi-year, multi-device agreement in place.
Samsung is a bit trickier. On one hand, Samsung has shown that it is willing to use Intel-designed cellular modems, but it has not used Intel's applications processors (likely as Intel's processors for this market have either been late to market or simply not competitive).
I seriously doubt that Samsung would use Intel-designed high-end applications processors, but for lower end phones in emerging markets Samsung might choose an Intel solution (particularly if Intel is willing to price aggressively).
So, how many will they actually sell?
From what I can tell, both SoFIA 3G and SoFIA LTE should offer solid performance, but probably nothing Earth-shattering. Intel will probably price these very aggressively, which means that they won't be wildly profitable, but they will help to establish Intel as a credible player in the smartphone chip space.
All in all, my expectation is that Intel should be able to capture at least 2-3% of the total smartphone market with these SoFIA products during 2015. I am assuming a negligible presence from Intel at the high end with Broxton, although I hope this assumption proves conservative.
According to Statista, smartphone shipments are expected to total just over 1.2 billion units during 2015. If Intel captures 2-3% of the market during that year, then this would imply between 24 and 36 million units shipped. This seems like a pretty doable goal as long as SoFIA is reasonably competitive.
Foolish bottom line
My expectation is that Intel will gun for at least 24 million smartphone chips shipped during 2015. However, it wouldn't surprise me if Intel got a little more aggressive and aimed for something more along the lines of 40-50 million units (roughly matching up with 2014 tablet chip shipments).
Shipping these chips won't lead to the eradication of the large losses in mobile that Intel is incurring. However, if Intel can get its foot in the smartphone door during 2015, then it can see both unit growth and a cost structure improvement once it moves its SoFIA product line to its in-house chip manufacturing technology in 2016 and later.
Intel doesn't need to get its mobile business profitable in 2015 or even 2016 to make investors happy; it just needs to make real progress in shrinking the loss and becoming a credible smartphone-chip vendor. If Intel finally proves itself here, then investors may be willing to overlook the large near-to-medium term losses in mobile, which could drive the stock price higher.
