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Intel CEO Claims Mobile Loss Reduction on Track, "Confident" in Product Pipeline

By Ashraf Eassa - Jan 16, 2016 at 12:30PM

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Chipzilla's CEO thinks the company's mobile future is getting brighter, but this Fool remains skeptical.

In 2014, Intel (INTC 1.50%) saw operating losses associated with its mobile efforts swell to a whopping $4.2 billion -- a figure larger than the market capitalizations of a good deal of smaller semiconductor players. This substantial loss was due to two key factors:

1. A significant investment in future mobile products, driving quite high research and development spending.

2. "Contra-revenue" payments associated with shipping around 46 million tablet processors, the majority of which required subsidies in the ballpark of $20.

Since seeing these losses peak in 2014, Intel has committed to bringing them down with a combination of product margin improvements and operating expense cuts in the coming years. During 2015, Intel says those losses came down by nearly $1 billion and expects that during 2016 they'll come down by another $800 million.

On the company's fourth-quarter earnings call, management provided some insight into the Intel's ongoing efforts to bring those losses down.

Loss reduction on target
CEO Brian Krzanich said the company is still targeting an $800 million loss reduction in mobile. However, he did claim that it is a "little early in the year" to talk about any "progress" here.

With that in mind, he was willing to state that Intel has a significant portion of that loss reduction "planned out."

"In other words, we have projects. We know what we need to do, introduce products, align which [stock keeping units] re coming, and move products on that," Krzanich said. "So I would say a large percentage of that is well-planned throughout the year."

The executive also went on to say that the company's third-generation multi-mode LTE modem, known as the XMM 7360, is "out" and "sampling" to customers. Customers for this modem, he noted, are going through the validation process of devices based on the modem on the various carrier networks.

Krzanich, however, declined to reveal any details about the timing of the launches of products using the XMM 7360.

"As far as the launches of those systems and the announcements, those are always up to our customers," he said.

Confidence in the product pipeline
As readers of my columns know, I believe that the biggest fundamental problem with Intel's mobile efforts is that the company's products are simply not up to par with what the competition brings to the table. To make matters worse, Intel's sub-par products often hit the market later than expected, further eroding their competitiveness.

Krzanich said on the call that the company is now releasing cellular modems at a "yearly cadence" and that he's "very confident" in the "next set of modem that comes out after the 7360."

As an investor, it's hard to share this confidence
At this point, it's hard for me to be anywhere near as confident as Krzanich seems to be in the company's modem pipeline. The 7360 is late -- Intel had originally promised it in devices by H2 2015 -- and the company has, in general, been overly optimistic about its cellular modem business.

Further, the XMM 7360 lags considerably behind Qualcomm's (QCOM -1.34%) current generation MDM9x45 and the gap will only widen in Qualcomm's favor when it launches its X16 LTE modem later this year -- which should be a full two generations ahead in process node and support substantially faster transfer speeds than the Intel part.

Intel also didn't offer any detailed insight into its modem roadmap during its most recent investor meeting. It didn't even dedicate a presentation to mobile, which tells investors just how "serious" the company is about mobile these days. So it's hard for investors to be able to judge for themselves the potential quality of Intel's modem pipeline.

For what it's worth, however, I'm not all that optimistic at this point, given the company's prior execution failures. 

That said, I do expect Intel to share more details about future modem technology at Mobile World Congress in late February. At that point, it should be possible for outsiders to evaluate Intel's near- to medium-term prospects in this space. 

Ashraf Eassa owns shares of Intel and Qualcomm. The Motley Fool owns shares of and recommends Qualcomm. The Motley Fool recommends Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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