Feature Article

January 16, 2013

Low End Smartphone Market a Golden Goose for Intel?

Yesterday, former Apple CEO John Sculley offered up his opinion that cheap smartphones and targeting emerging mobile markets is the right plan for Apple to move forward with. As ridiculous as that suggestion is for Apple, it just may be the absolutely best prescription for Intel to improve its mobile revenue streams, which haven't been nearly as robust as one might have anticipated would be the case. And with the release of its new Atom processor, which the company introduced at the 2013 Consumer Electronics Show last week, Intel looks to me to be acknowledging that it is fully on board with the plan.

What makes this such a good plan for Intel? The new Atom platform (earlier code named Lexington) specifically targets emerging third world regions, where demand for inexpensive though function-rich smartphones is skyrocketing. Just how big is the market here? Let's take a look at the worldwide projections for growth in this segment, shown in the chart below, as determined by IHS iSuppli/Screen Digest Mobile & Wireless Service.

Indeed, the chart shows exactly what would be defined as skyrocketing - a market already at a hefty 206 million units that will between now and 2016 move to 559 million units, and may in fact end up topping 600 million. That is exactly the kind of market Intel needs to have in hand to move the revenue and market share needles into non-trivial range. Per the chart, shipments of inexpensive smartphones will rise at a compound annual growth rate (CAGR) of 51 percent between 2011 and 2016. In comparison, IHS iSuppli/Screen Digest estimates that high end smartphone shipments will grow at a CAGR of only 12 percent during the same period.

From a global regional perspective IHS iSuppli/Screen Digest estimated the following:

  • Shipments of all kinds of cell phones in China are expected to rise at a CAGR of eight percent between 2011 and 2016, making it the world’s fastest growing region
  • The next fastest-growing area will be the rest of the Asia-Pacific countries, which will rise at a six percent CAGR
  • In third place is the EMEA region, with five percent growth
  • The well-established North American region is estimated to grow only four percent

Francis Sideco, senior principal analyst for Wireless Communications at HIS points out that, “By targeting the low end, Intel can attempt to address the market with the greatest opportunity for growth in the smartphone business during the next few years. With Intel now holding a negligible share of the global smartphone applications processor market, the company appears to be taking the steps it needs to in order to have a chance at expanding its presence in this segment.”

“In these emerging markets optimizing the cost/performance balance will be critical for success,” Sideco continues. “Intel will need to also heavily leverage its acquisition of Infineon to ensure it offers the best solution involving both the applications processor and the cellular radio - the two primary processing functions in any smartphone.”

Intel’s share of the market for applications processors used in smartphones is amazingly minimal at present. Not very many of us would have guessed five years ago that Intel would fail so completely to deliver on a more significant smartphone presence. It has been outfoxed and outplayed most directly by Qualcom, as the chart below clearly shows.

I may actually be giving Qualcomm too much credit though. Intel itself has badly played the mobile device game to date and may be more responsible through bad business decisions for its current position that Qualcomm has been in outplaying Intel. Owning 52.3 percent of the market is an enviable position for Qualcomm, while Intel's estimated 8.4 percent share demonstrates how badly Intel has performed. In fact, the explosive growth of the mobile market overall clearly underscores this.

"While Intel dominates the rapidly shrinking PC microprocessor market, in the smartphone semiconductor business the company has no place to go but up,” Sideco notes. “And while Intel certainly faces major challenges in achieving the kind of leadership position in mobile handsets it has long maintained in PC semiconductors, the company appears to be serious about building its competitive positioning in the smartphone chip market.”

I certainly hope so because I would not want to see Intel find itself in the position that once dominant Dell now finds itself in, seriously contemplating taking itself private.

Edited by Jamie Epstein

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