We can’t say we didn’t see this one coming. Intel Corporation (NASDAQ:INTC)’s profits fell 25% year-over-year in the first quarter, and missed estimates by a penny per share. On the company’s earnings call management noted the declining PC market is a significant headwind to the company, but remained optimistic for the latter half of the year. Retiring CEO Paul Otellini stated, “The company’s core architectural and manufacturing strength have never been more valuable.”
Here are some key takeaways from the company’s first quarter earnings call.
What makes Otellini so optimistic is that we’re entering a new wave of multiple form factor computing. Computers no longer sit on your desk or in your lap, now you hold them in your hand, and in the future you’ll be wearing them on your wrist or even your face.
As a chipmaker, Intel Corporation (NASDAQ:INTC) remains at the forefront of manufacturing, inventing new processes that allow it to deliver on the promise of Moore’s Law. As companies like Apple Inc. (NASDAQ:AAPL), Samsung, and even Microsoft Corporation (NASDAQ:MSFT) design computers made to look like watches, battery life will play a significant role. What good is a watch that only works for 12 hours? Intel’s manufacturing strength lends itself to high-efficiency chips that these devices require.
Intel hopes to leverage its strength in making smaller, more efficient chips to improve the impact of Ultrabooks on the market. Last year, sales of Ultrabooks significantly failed to meet expectations, as only about half of the initially forecasted units moved off the shelves.
This year, Intel will release Haswell, a new chipset designed with Ultrabooks in mind. Intel Corporation (NASDAQ:INTC) hopes that the launch of Haswell along with new Ultrabooks designed around Microsoft Corporation (NASDAQ:MSFT)’s Windows 8 will help pick up sales in the second half of the year. As a result, Intel expects Ultrabook pricing to come down to the $599 range, and battery life to extend up to 13 hours.
IHS expects Ultrabook sales to quadruple from last year to 44 million units. The $599 price point, however, may be tough to achieve according to senior analyst Craig Stice. A full-featured Ultrabook with a new Haswell processor and touch screen will make the OEM’s margins unthinkably small. Using older technology might allow for it, but it seems unlikely we’ll see a lot in that price range.
Mobile is an area where Intel was slow to adapt. This year, however, the company expects to make a serious impact, significantly increasing its 1% share of the market from last year. In the first quarter, the company increased tablet volume 100% in the first quarter, and expects to double again this quarter.
In the second half, the company expects its Bay Trail and Clover Trail chips to power a new generation of mobile devices and bring price points down to $300 to $400. Otellini said there’s an opportunity to “go into prime selling season with new products, new technologies, new form factors, and new capabilities that, up to now, were unapproachable price points.”
Intel’s refusal to manufacture ARM Holdings plc (ADR) (NASDAQ:ARMH)’ chip designs is an oft contested business move. ARM’s designs are in 90% of smartphones, and the company has a 31% share of the mobile computing market. Intel Corporation (NASDAQ:INTC) is fighting an uphill battle against QUALCOMM, Inc. (NASDAQ:QCOM) (in baseband processors) and NVIDIA (with its Tegra mobile processors), which both use ARM architecture.
Intel management appears to know what it’s doing, as analysts fear ARM’s market share dominance is in jeopardy, particularly in tablets. While its chips are in the most popular tablets like the iPad, Kindle Fire, and Google Inc (NASDAQ:GOOG) Nexus, Intel is making moves in the low-end tablet market. Asustek just released an Android tablet with a Baytrail processor that competes with Google Inc (NASDAQ:GOOG)’s Nexus and similar HP tablets that use ARM chips.
Most growth in tablet sales going forward will likely come from the lower-end as emerging markets see an expanding middle class. Capturing a large part of the low-end from ARM will be a huge coup for Intel.