In the world of mobile processors, integration is the name of the game. In the words of Intel's (INTC 5.84%) CFO Stacy Smith, "the highest performance, lowest power, least expensive way to bring a capability to the user is to integrate it into silicon." This idea of integrating as much as possible is one that Intel's competitors in the mobile market have gotten down pat, but the chipmaker still needs to work on this area.
Intel has signaled it understands this, and Intel's recent mobile road map shows that it plans to integrate quite a lot more into its phone and tablet chips in the time frame leading up to 2016.As I have written previously, this will pay off in smartphones and tablets, and it will also mean good things for its competitive positioning in the PC market.
Communications is here to stay
At the Credit Suisse Technology Conference earlier this month, Intel President Renee James made the following comment:
Our view is that communications is part of the platform, for here, going forward, forever. And, come hell or high water, it's a differentiator and it's our job to get it right. So, our expectation is -- like we did with graphics -- we will work on integration and attach to all of our products on the client side from IoT all the way through desktop.
While there will be some cases in which a stand-alone modem makes more sense than an integrated modem, I think this quote tells us quite a lot about where Intel sees PCs and its PC-oriented chips going over time.
Future low-end PC processors might have integrated connectivity and communications
If we look at what Intel is doing in the low end of the PC market today with Bay Trail-based Celeron/Pentium chips (which is a very similar architecture to Intel's Bay Trail-T in tablets), it's clear that low-end PC processors and tablet processors are closely related.
In Intel's mobile road map, it's evident the company plans to have 14-nanometer Atom processors, complete with integrated LTE basebands, in 2016 with SoFIA LTE 2 and SoFIA MID.
Now, the SoFIA platforms are designed with tablets and phones in mind, but I can't see any reason why Intel could not spin derivatives of these system-on-chip products packing the required PC-focused IP blocks, as it did with the Bay Trail-M/D chips.
I don't think we're too far from seeing Pentium/Celeron chips with integrated cellular and connectivity for the low-cost 2-in-1 and clamshell notebook (both Windows and Chrome) spaces.
What about the high end?
In the premium 2-in-1 space serviced by Core M, and in the Ultrabook market serviced by Core i3/i5/i7, I doubt integration of the communications IP into the main system-on-chip is in the cards in the near-to-medium term. With these products, Intel transitions quickly to new architectures and new process technologies, and the development and certification timelines of new cellular base-band solutions likely aren't quick enough to keep up.
It seems more likely that these platforms will be paired with stand-alone communications solutions. In this case, Intel could still work on driving attach rates up, but integration might be quite a bit trickier.
Furthermore, given the fairly high selling prices of such systems, the potential cost savings of integration in this market likely don't outweigh the challenges and risks (i.e., the processor portion is ready but there is a hiccup with the integrated modem, delaying the product).
What does this mean for investors?
The more of the platform that Intel can provide, either by way of system-on-chip integration or platform-level integration, the greater its revenue opportunity per PC. This also gives Intel an opportunity to bring more volume into its factories once its connectivity and communications chips are being built on Intel-designed manufacturing technology (current chips are built externally).