Here's Why ASUS May Be Intel's Key Smartphone Partner

Anybody familiar with the PC space knows that ASUS is one of the most trusted brands for PC motherboards, monitors, graphics cards, and notebook/desktop computers. Its products are competitive, reliable, and perform well. It's a name that's trusted by many and, as a result, it seems that as Intel continues its push into ultra-mobility, ASUS will be a prominent player and perhaps a key driver to potential success for Intel in this market.

The ASUS ZenFone is a great first step
At CES, ASUS announced a line of smartphones known as the ZenFone lineup. These are incredibly solid phones that -- for the asking prices -- should do quite well in markets where LTE is not currently widespread (these phones use Intel's XMM 6360 modem, so 3G only). They are powered by Intel's Z2500 family of Atom SoCs and compared to its peers in the $99-$199 unsubsidized price range, the performance is at least as good as what competitors are shipping, if not better.

ASUS' ZenFone lineup is set to be Intel's most successful smartphone win to date. Source: Intel.

According to Digitimes, ASUS plans to sell about 5 million of these ZenFone products during 2014, making ASUS Intel's largest smartphone processor customer. The goal for 2015 is 10 million units, or about double 2014 levels. From a revenue standpoint, it is unlikely that Intel is generating much; in fact, it wouldn't be a surprise if these processors required contra-revenue to offset a high bill of materials relative to other cheap smartphone chip solutions. That said, this gets Intel in the door.

Is this a potentially fruitful multiyear partnership?
At Mobile World Congress, Intel announced a multiyear, multidevice partnership with ASUS. Intel mobile executive, Hermann Eul, indicated that ASUS and Lenovo had both signed on for such partnerships and that these partnerships would span phones and tablets utilizing Intel's entire portfolio of products.

Intel's Tangier SoC, part of the Merrifield platform, is shown on the right. Source: Intel. 

Now, while ASUS is no Samsung, the partnership here couldn't be more obvious. Intel needs to break into the mobile market where it faces Qualcomm , an extremely powerful incumbent. It also faces the fact that Apple, which owns 15% of the smartphone market, designs its own chips and also that Samsung -- which designs its own chips and builds chips for the likes of Qualcomm as a foundry -- owns 30% of the market. This leaves just 55% for the rest of the world (the number is actually smaller as Huawei designs its own silicon, too).

Intel's job is to make companies like ASUS strong
Intel isn't going to win this market by winning over Apple or Samsung, so what it does need to do is to build up some of these smaller friends from the PC market to be formidable players. If the likes of ASUS, Lenovo, and even Acer (which actually dumped Intel's chips in phones for 2014, but could be back in 2015 when Intel's product portfolio improves) could be made into formidable Samsung alternatives, then Intel could still win that way.

How does Intel do this? Well, ASUS (among others like ASUS) bring to the table solid engineering prowess and established consumer brands. Intel will be able to bring solid silicon as well as a major international brand to the table, helping these smaller players more effectively fight Samsung and Apple. This isn't something that'll be easy given the current state of the market, but Intel has invested too much in mobile to not pull every lever it can to gain share.

Foolish bottom line
With the ZenFone, ASUS and Intel showed that they could put together a really compelling low-end phone for cost-conscious markets. However, this partnership is likely to extend much further and it wouldn't be a surprise to see some higher-end phones shipping in the U.S. built by ASUS this year. ASUS isn't a Samsung, but there's no fundamental reason why ASUS can't take a big piece of Samsung's smartphone pie with Intel backing it -- assuming, of course, that Intel gets its mobile-chip story straightened out.

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