Please ensure Javascript is enabled for purposes of website accessibility

This Isn't Why Intel Corp. Failed in Mobile

By Ashraf Eassa - Jan 21, 2016 at 8:30AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A rebuttal to an explanation for why Chipzilla couldn't gain a significant foothold in the mobile chip market.

In my book, chipmaker Intel (INTC 0.11%) has failed in the mobile market. The company has yet to produce a truly competitive product for any tier of the smartphone market, and given that it is scaling back its mobile-related investments (mobile related spending is expected to come down by about $1 billion from 2014 to 2016), it's hard to imagine that the company has aspirations of leadership here.

Seeking Alpha contributor Mark Hibben attributed this failure to two things in a recent column:

  1. A failure of technology; in particular, he blames the use of the x86 instruction set for Intel's product issues here; and
  2. a failure of business model in which he claims that Intel tried to apply the "commodity processor model" to an industry that isn't receptive to that.

Well, I don't think either of these two factors have much to do with Intel's failure in this space. Let me tell you why.

A failure of technology, yes, but x86 had little to do with it
A typical mobile system-on-chip is a very complex beast. It has multiple different, very critical intellectual properties, or IPs, integrated onto a single piece of silicon. Such IPs include CPU cores, memory controller, graphics processor, multimedia engines, image signal processors, and in some cases even cellular baseband processors.

In order for a chip company to deliver successful products in the mobile market, it needs to -- within a given segment -- offer competitive/leadership performance and capabilities in each of these areas. It's simply not enough to get one bit right but offer a product that's behind in many other crucial areas.

With Intel's mobile chips, the CPU was only one part of the problem. Furthermore, I believe that the issues on the CPU side had little to do with the X86 instruction set (since Intel was able to do a lot of legwork to enable X86 compatibility in most Android applications) but with the competitiveness of the underlying CPU designs which, as one chip expert said in a social media post, "largely decoupled from their [instruction set architecture]."

Intel simply did not design its Atom CPU cores with enough performance to really be competitive with its contemporaries.

Beyond that, though, in the chips it has released, Intel's graphics implementations were lacking, its imaging capabilities were well below that of the competition, and they have not had competitive cellular modem integration (Intel's only shipping part with a modem is a low-end chip with a 3G modem, hardly modern in this world).

I believe that if Intel had fielded competitive, x86-based mobile architectures, it could have been a strong No. 2 behind Qualcomm (QCOM 0.15%). However, it would seem that MediaTek has emerged as that solid second-place player.

What's wrong with the "commodity processor" model?
Another point Hibben makes is that Intel tried to apply the "commodity processor" model to this market, noting that major smartphone players like Apple (AAPL -0.62%), Samsung (NASDAQOTH: SSNLF), and Huawei have designed custom chips for their mobile devices.

The problem with this argument is that what he really seems to be saying is that there is no market for merchant silicon and that every smartphone vendor will build their own custom processors.

While it is true that it is now in vogue for mobile chip vendors to roll their own, it's hard to escape the fact that very few bespoke mobile chips have actually been superior to the "commodity" processors offered by Qualcomm.

Additionally, the premium portion of the market -- the only part of the market in which it would even make sense to try to develop custom chips -- is being dwarfed by the growth in the low-end and mid-range parts of the market.

However, if we assume that Hibben is right in that the "commodity processor" model isn't viable, then this means that no matter what, Intel never stood a chance in this market since it does not sell mobile devices; it is a chip/platform company. Based also on this reasoning, Qualcomm's chip business and MediaTek are destined to go out of business any day now!

In short, the merchant chip business is viable, but it requires that a company deliver leadership products at a good cost structure, something Intel was never really able to do in mobile.

Ashraf Eassa owns shares of Intel and Qualcomm. The Motley Fool owns shares of and recommends Apple and 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Intel Corporation Stock Quote
Intel Corporation
$35.82 (0.11%) $0.04
Apple Inc. Stock Quote
Apple Inc.
$173.46 (-0.62%) $-1.09
QUALCOMM Incorporated Stock Quote
QUALCOMM Incorporated
$148.75 (0.15%) $0.22

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/18/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.