Original URL: https://www.theregister.co.uk/2010/10/17/intel_tablets/
Intel sets out tablet stall for Atom
It's key to growth but it ain't easy
In reporting its third quarter financial results, Intel placed the emerging tablets device category far higher up the agenda than in previous quarters, indicating the importance of new form factors in driving growth, as PCs and cellphones both start to mature.
The same trend was highlighted by the latest figures for the baseband chip sector, where the highest levels of growth are being driven by non-handset wireless products. But can Intel's strategy deliver the goods as Atom battles the ARM-based processors and it takes on Infineon to re-enter the baseband space?
The new tablets may cannibalize parts of the PC market, but Intel has no choice but to pursue that segment, and it set out its stall aggressively while announcing a solid third quarter. CEO Paul Otellini had promoted the new format, from an “additive” category to a key growth priority, and was in determined mood. "We will use all of the assets at our disposal to win this segment," he told analysts on the results call. “We fully expect to participate fully and broadly in this market.”
In general, Otellini was in cautious mood, looking for a “slow and steady” upgrade cycle in PCs in general and agreeing that the hybrid market between notebooks and phones was a difficult one. "Low end desktops, netbooks... it's still kind of tough out there. We're assuming modest growth, not a double dip recession.”
Despite the heightened focus on tablets and other mobile devices driven by the Atom low power processor, Atom's revenues were down 4% compared to the second quarter, to $396m, while the higher end product groups – PC and server microprocessors – both enjoyed 3% sequential growth and record revenues. This indicates the price pressure on Atom as well as rising competition from other, ARM-based silicon, although the average selling price for micro-processors as a whole was up year-on-year.
Gross margin was 66%, in line with Intel's forecast, though this was revised downwards a few weeks ago. That reduced guidance helped the Q3 results to come in ahead of expectations, though they looked solid anyway, with an 18% year-on-year leap in revenues to $11.1bn and earnings per share of 52 cents, up from 33 cents a year earlier and ahead of Wall Street predictions of 50 cents. Net profit was up from $1.9bn last year to $3bn.
Intel said the outlook for the fourth quarter is for revenue of $11.4bn, plus or minus $400m, and gross margin of 67%, plus or minus two percentage points.
Otellini said: "Looking forward, we are particularly excited about our next generation processor, codenamed Sandy Bridge, and the many new designs around our Atom processors in everything from the new Google TV products to a wide array of tablets based on Windows, Android, and MeeGo operating systems."
He was notably quiet about handsets, the most difficult market for Atom to penetrate, given the strong entrenched position of Qualcomm and others. But he was open about Intel's lack of track re- cord in handheld devices such as tablets. "The big question on everyone's mind is how Intel will respond to new computing categories where Intel currently has no presence, specifically tablets,” he said during the analyst call.
“We think tablets are exciting and fully welcome their arrival. Will they impact PC sales? Sure, at the margin they probably will.” He praised the upcoming "Oak Trail" Atom-based system-on-chip, which is designed specifically for tablets and thin netbooks and will appear in products in 2011.
Analysts welcomed Otellini's frank acceptance that tablets would be a tough market, with Samsung/Apple, and Qualcomm Snap- dragon, leading the charge into the first wave of these devices. JMP Securities analyst Alex Gauna said in a research note: “Intel is demonstrating it is the powerhouse in delivering raw computing performance, and we like the candor with which it is acknowledging the tablet threat. If the company gets its energy consumption right with successive generations of Atom processors, there is every reason to believe Intel's claims that it will profitably participate in this expanding product category.”
The baseband market
The other aspect of the mobile device is the baseband modem. While Qualcomm and others integrate this tightly with the processor, Intel, Marvell, Freescale, Nvidia and Texas Instruments just provide the latter component, alongside third party modems. With its planned acquisition of Infineon's wireless arm, Intel will gain its own baseband business. The jury is very much out on whether it really needs this, or whether it will manage it effectively, but at least it is purchasing the German unit at a time when it is gaining ground, according to new figures from Strategy Analytics.
This study found that non-handset mobile data devices are proving to be the big growth engine for device makers in late 2010 and 2011, and this is reflected in the cellular baseband chip market too. While unit shipments were up 23% in the first half of 2010, compared to the year-ago period, non-handset basebands outperformed this curve, and accounted for 12% of total revenues as of mid-year.
The figures also reflect the price pressures in basebands – while units were up 23%, revenues grew only 15.5% in the same period. However, the vendors will be focusing hard on the main growth generators – data cards, tablets, dongles and machine-to-machine devices.
Among those suppliers, Qualcomm continued to dominate with 39.6% revenue share in the first half of the year. “We believe much of the Qualcomm's growth came from smartphones and non-handsets in 1H 2010,” said analyst Stuart Robinson.
The US giant still has almost 2.5 times the market share of its nearest rival, MediaTek, though this could be squeezed as the Taiwanese supplier moves into higher end markets. Currently, the two firms have very different profiles – Qualcomm, of course, has its CDMA near-monopoly to boost its rankings, but it also shines at the high end with HSPA+ and LTE modems on the horizon.
MediaTek, as Strategy Analytics points out, has only recently launched its first W-CDMA product and focuses on low end handsets, especially those made in China. It had less than 1% market share in 3G but was the leader in GSM/GPRS/EDGE as well as, unsurprisingly, the Chinese 3G standard, TD-SCDMA. However, the report says “MediaTek's baseband shipments to grey handset OEMs showed signs of decline in 1H 2010 in the wake of government-led crackdowns in India and China.”
After the big two came ST-Ericsson, coming out of a transition period with a newly enhanced and rationalized product line for 2G, 3G and LTE, but it still needs to boost its stagnant W-CDMA share. This is being pressurized by Qualcomm and also Infineon, whose wireless business is in the process of being acquired by Intel. The German firm continued to gain share in 2G and W-CDMA markets and is positioning well against Qualcomm in non-handset segments, where it has an estimated 9% share. The Intel purchase should strengthen this hand.
Broadcom remains well behind the top four but its baseband revenue did grow by 245% year-on-year, as it gained new design wins at Nokia and Samsung for EDGE and W-CDMA. Also making progress were Spreadtrum of China, Marvell, the "other CDMA supplier‟ Via Telecom, and the UK's Icera, which has a software defined strategy for LTE. Renesas' baseband revenues were down slightly but this should reverse after its takeover of Nokia's own baseband activities and its LTE design alliance with the Finnish giant.
Copyright © 2010, Wireless Watch
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