Image source: Intel.
Intel (INTC 5.51%) announced that it pulled the plug on its smartphone applications processor efforts a few days ago. The company, in a statement provided to IDG News Service, said that the company will divert resources to "products that deliver higher returns and advance [Intel's] strategy."
Given how much money Intel burned pursuing mobile processors, even buying U.S. Treasury notes with those research and development dollars would have delivered higher returns.
With Intel now squarely out of the market for smartphone applications processors, it's worth examining what the company's financials might have looked like had it actually succeeded in becoming a strong No. 2 player in this market.
The best way to find out? Look at MediaTek
Intel's chances of displacing Qualcomm (QCOM 0.91%) as the leading vendor of smartphone applications processors and modems was probably never good, but the odds of a semiconductor/computing juggernaut like Intel becoming a strong No. 2 to Qualcomm didn't seem all that low.
In the end, though, the honor of the strong No. 2 player went to Taiwan-based chipmaker MediaTek. Last year, MediaTek brought in approximately $6.6 billion in revenue, the majority of which came from sales of mobile-oriented applications processors (it also makes chips for other products such as DVD/Blu-Ray players).
On that $6.6 billion in revenue, MediaTek generated $2.84 billion in gross profit and approximately $803 million in operating income.
Add that to Intel's financials and you get...
If we take MediaTek's results and add them to Intel's, then last year Intel would have generated about $62 billion in revenue and $14.8 billion in operating income, up from $55.4 billion and $14 billion, respectively.
The difference in revenue is fairly significant, but the difference in operating profit doesn't amount to a whole lot. That being said, it's worth noting that Intel's 2015 results included the spending that the company was sinking into its own organic mobile efforts; shutting those down and having MediaTek's results in their place would have improved Intel's operating income beyond what was mentioned above.
Although Intel would, in this case, bring in more revenue and generate more profit, mobile success probably wouldn't have been a fundamental game changer for the company and/or the stock. Things would be better, and Intel would probably have an easier time growing in the face of a declining PC market, but we are probably not talking about a difference so substantial that Intel's long-term fate would be materially different.
Some additional context
In fact, for some additional context, note that Intel's fairly new Internet of Things Group generated $515 million in operating income on just $2.3 billion last year -- nearly as much operating profit as MediaTek's entire business. The business also appears to be on a good trajectory, with revenue up 22% and operating income up 40% year over year in the first quarter of 2016.
If this business keeps on a reasonable growth trajectory, it may soon be more profitable than MediaTek's entire business. No wonder Intel cites this segment as a key focus area going forward.
Looking forward to discussion on how the resources will be redeployed
Intel will almost certainly talk about how it is redeploying/reinvesting the resources that were previously used to try to build smartphone chips/platforms at its investor meeting in November of this year. The company has talked about pursuing segments of the client computing market that are growing and nicely profitable (i.e., gaming-oriented processors, 2-in-1 systems, and such).
I look forward to seeing what improvements/changes to the company's strategy in those "high-growth" areas management ultimately implements.
