Unit Rich, Cash Poor: Intel Atom's Chip on Its Shoulder

Unit Rich, Cash Poor: Intel Atom's Chip on Its Shoulder

If Intel had its way, it would power all of the planet's computing devices. Unfortunately, the world has moved quicker than Intel would've liked, and now the company is playing catch-up in the age of mobile computing. To that end, Intel's fashionably late entry into mobile computing will be based on future Intel Atom releases covering a gamut of smartphones and tablets.

With combined worldwide tablet and smartphone shipments easily surpassing over a billion units annually, Intel's Atom's addressable market could be poised to grow larger than the 320 million or so PCs that ship each year. Should Intel manage to substantially grow its mobile computing market share, Intel Atom will become an increasingly important business.

Greater priority
In the past, Intel's leading-edge capacity was allocated to its Core line of PC processors and Atom was given a lower upgrade priority. If recently appointed CEO Brian Krzanich has any say in the matter, that's likely to change in the future. He was recently quoted saying how "we see that Atom is now at the same importance [as its Core processor line], it's launching on the same leading-edge technology, sometimes even before the Core [family of processors]." Ultimately, Krzanich made it clear that Atom will be given a greater priority going forward.

Just how important?
Despite mobile computing having a much larger addressable market in terms of total units, the potential revenue per unit is far less than a PC. To give you an idea of what Intel might earn, mobile computing giant Qualcomm shipped 173 million chips last quarter, generating about $3.9 billion in revenue, which implies an average selling price of around $22. With Intel's ASP believed to be around $107, it's almost a given that its ASP will decline if Intel wants to be competitive in mobile computing. At those prices, even if Intel sold every mobile computing processor expected to ship this year, it wouldn't match the annual revenue it generates from PCs.

Hypothetically, if Intel could fetch the same $22 Qualcomm commands and it could power all of the roughly 1.15 billion smartphones and tablets expected to ship this year, it would translate to $25.3 billion in revenue, $9 billion less than what Intel's PC client group brought in last year. For mobile to surpass its PC client group revenue, Intel would need to command an ASP of $30, a 36% premium over Qualcomm's ASP.

Of course, it isn't realistic for Intel to find its way into every single mobile computing device being shipped when you have companies like Apple and Samsungdesigning in-house processors that command a hefty piece of the market. It's more realistic to think that Qualcomm's annual chip shipments are along the lines of Intel's maximum potential in mobile. Considering Qualcomm shipped 590 million chips last year, we're only talking about roughly $13 billion in revenue at $22 per chip. To put this figure in perspective, it represents 24% of Intel's 2013 projected revenue.

Additionally, the rise of mobile computing has been cannibalizing PC shipments since 2011, which has put added pressure on Intel's revenue. Between these factors, it's all but certain that Intel will face revenue headwinds in the future.

The great unknown
As Intel works to find its footing in mobile computing while its existing PC business is cannibalized, I'm not expecting the transition to go smoothly. There's no way to know for sure if Intel can maintain its historically rich profit margins as it faces revenue headwinds.

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The article Unit Rich, Cash Poor: Intel Atom's Chip on Its Shoulder originally appeared on Fool.com.

Fool contributor Steve Heller owns shares of Apple, Qualcomm, and Intel. The Motley Fool recommends Apple and Intel. The Motley Fool owns shares of Apple, 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.

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