1 Way Intel Corporation Could Improve Its Mobile Prospects

By Markets Fool.com

Most tech investors will be surprised to find that Intel has not been able to capitalize on the large market for mobile processors. Sure, it appears on track to achieve its goal of 40 million tablet chips shipped for the year, but platform bill of materials complications drove the need for contra-revenue offsets, leading to significant losses per unit sold.

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Additionally, while Intel has solidified itself as the No. 2 provider of cellular baseband processors behind Qualcomm , its only competitive products in that portfolio are high end stand-alone processors. There is certainly a market for such chips, but it is far smaller than the broader market for integrated applications processors and basebands, where Intel is nonexistent today but hopes to make progress next year.

I believe that once Intel begins to build its modem IP on leading-edge manufacturing technology, it will be able to deliver a far more compelling value proposition than it does today. Allow me to explain.

Can't build a business on just stand-alone modems
The vast majority of Intel's design wins in phones todayare for stand-alone modems, and those modems are paired with applications processors from the phone vendors. Furthermore, Intel is only in versions limited to a handful of relatively low-volume markets.

On top of that, while I'm not sure whether LG has an in-house cellular modemgroup, Samsung-- which appears to be Intel's highest-profile modem customer -- does have internal cellular baseband efforts. Only time will tell whether Samsung's efforts will be good enough to eliminate its need for external vendors such as Intel, but investors should be mindful of this risk.

This is why Intel, as Qualcomm and MediaTek have, needs a substantial business selling fully integrated solutions to handset vendorsfor which designing in-house solutions simply doesn't make sense. Stand-alone baseband business is nice as an additional revenue stream, but the bulk of the business needs to be from integrated solutions.

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Use the modem to spruce up the competitive profile of midrange and high-end chips
As I have writtenpreviously, Qualcomm has done a good job of putting "a little bit extra" into the cellular modem found inside its integrated premium Snapdragon processors relative to the stand-alone version of that modem. Intel, in time, should consider a similar strategy of keeping a few features on the modem "reserved" for those who buy a complete integrated solution.

In fact, during the Q&A session at an Intelinvestor meeting, company mobile chief Hermann Eul made it clear there are no technical reasons that Intel going forward must release stand-alone variants of its cellular modems before integrated apps processor and modem solutions.

I believe that once Intel has established itself as a credible force on the modem side of things (where I think it is making real progress), the company can begin to make real inroads with integrated applications processors and modems.

When all is said and done, Intel will need to make sure that its integrated parts are consistently competitive on price and features. If it can deliver that without interruption for multiple generations, then it seems sensible that Intel will win a solid amount of the smartphone applications processor and baseband market.

The article 1 Way Intel Corporation Could Improve Its Mobile Prospects originally appeared on Fool.com.

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