In a recent article, I argued that Intel's (NASDAQ:INTC) mobile business is probably going to continue to disappoint in 2016. I stand by that prediction, as I believe that the fundamental assumptions underlying it are good.
However, from a longer-term perspective, there is something going on in the industry that should ultimately prove a longer-term positive for the company's mobile efforts: consolidation.
There aren't all that many mobile applications processor vendors left
When the smartphone boom first kicked off, many companies invested in trying to get their share of the mobile processor and modem pie. However, over the past several years, many of the players in this space -- some of which quite large -- have chosen to exit the business.
Those that have left simply didn't have the scale to compete. After all, developing complex applications processors and cellular modems is neither easy nor cheap, and if a company can't even sell enough product to just break even, let alone generate consistent profitability, then it just doesn't make sense to be in that business.
Indeed, at this point there are very few major applications processor and baseband vendors left.
Intel's partnership with Spreadtrum could pay off nicely
According to Strategy Analytics, the top five vendors of smartphone applications processors in 2014 were Qualcomm (NASDAQ:QCOM), MediaTek, Spreadtrum, Samsung (NASDAQOTH:SSNLF), and Apple (NASDAQ: AAPL).
Apple's volumes come from its having substantial captive business thanks to the iPhone, and the same goes for Samsung -- although it does occasionally sell applications processors to other vendors. Qualcomm, MediaTek, and Spreadtrum are top merchant vendors.
I suspect that Intel's best shot at gaining significant volumes in the smartphone chip market will be through its partnership with Spreadtrum, which is already a top merchant vendor in the smartphone chipmaker -- although it's a distant third to MediaTek, according to DigiTimes. .
Recall that Intel recently took a 20% stake in mobile-chip maker Spreadtrum and that both companies announced a while back that they were jointly working on processors based on Intel's SoFIA architecture, which integrates Atom cores with Intel modems as well as other intellectual properties.
Keep in mind, though, that in an interview with the EETimes, Spreadtrum CEO Leo Li said Spreadtrum is under "no obligation" to use Intel's intellectual properties -- such as CPU cores, graphics, and the like -- even though the company plans to build chips using Intel's 14-nanometer manufacturing process.
Further, since Intel has just a 20% stake in Spreadtrum, it's not entirely clear how much Intel can profit from mobile-chip sales. That said, If Spreadtrum gains significant share using non-Intel designs manufactured in an Intel process, then Intel should be able to capture the "foundry margin" here at the very least, though.
And if Spreadtrum eventually gains a reasonable amount of share selling chips with Intel-designed intellectual property manufactured in Intel's manufacturing process, then this should -- in theory -- be even more financially interesting than the straight foundry option.
So many questions left about Intel's smartphone strategy
It's difficult to understand Intel's smartphone strategy. Will Intel essentially go after the market exclusively through various partners and essentially act as an IP provider and fab to those partners, or will it use partners for some regions (i.e., China) and develop chips organically using its intellectual property for other regions?
At any rate, it would seem that as a result of the industry consolidation that seems to be happening, Intel, either organically or through partners, is one of the few companies with the ability and willingness to invest in trying to capture share in this market.
I look forward to hearing Intel's plan to actually execute on the opportunities that appear to be in front of it. That news should come later this year at its investor meeting.