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Intel Corporation Message Board

  • wallisweaver wallisweaver Oct 2, 2012 1:44 PM Flag

    Guess What? Wall Street Really Is Stupid and Here's Why

    Intel: There's Certainly A Bull Case

    Jim Cramer, former hedge fund manager and the host of the popular investment television show, "Mad Money," came out on his show recently and made the following remark about Intel (INTC):

    "I have no bull case for it, none."

    While I know that it's fashionable to hate on Intel, along with the entirety of the PC space, I think that Mr. Cramer is absolutely, positively, without-a-doubt dead wrong. There's absolutely a bull case for Intel, and in this article, I intend to outline it.

    The PC Is Dying - A Lot Of Media Hype

    The centerpiece to any anti-Intel argument is that the traditional PC is going the way of the dodo bird and that tablets and smartphones will become the computing devices of the future. Make no mistake: smartphones are here to stay and tablets are likely to find their places in the computing spectrum, but to say that traditional PCs are going to be supplanted by tablets is ignorant at best and fear-mongering at worst.

    First off, I think that there's a large media misconception when it comes to the notion of the "PC". We're not talking big, bulky desktop computers for home use. Instead, the PC refers to a whole gamut of computing devices including ultra-thin and sleek notebooks, traditional-sized notebooks, home theater PCs, gaming desktops, and high-performance workstations for professional content creation.

    While tablets are wonderful for watching YouTube videos or surfing the web, it is ludicrous to believe that programmers, digital artists, journalists/writers, engineers, college students, and musicians will find that tablets will provide the level of flexibility, performance, customization, and value for the dollar that more traditional PC form factors offer.

    Further, despite the media hype over the last several months, a recently released piece from DigiTimes noted the following:

    "Notebook shipments to Hewlett-Packard (HPQ) in September are estimated to increase on month by 70%, and those to Asustek Computer and Acer to go up by 50% and 30% respectively"

    The piece further goes on to state that the weakness in sales during July and August were primarily due to the ODMs looking to clear out inventories of Windows 7-based laptops, and that Windows 7-based models stopped shipping in mid-September.

    So, wait? PC sales slumped because the entire world plus dog knew about the arrival of Windows 8 PCs? What a shocker! The PC isn't dying, the iPad isn't going to take over the computing world, and Intel isn't going to go bankrupt tomorrow.

    Sentiment: Strong Buy

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    • But let's assume that tablet sales also pick up, and that these tablets serve as replacements for traditional notebooks for some people. Is this necessarily a bad thing for Intel?

      Intel's Atom Z2760 For Tablets - Looks Rockin' To Me

      Intel's tablet strategy is very closely tied to Windows 8. In particular, the goal of Intel-based Windows tablets is to bring the traditional notebook/Windows PC experience to the tablet form factor in order to make sure that any customers that do want to trade their notebooks for tablets have a painless transition. The most attractive option to move to the new form factor is to keep the familiar, useful parts of the old whilst adding the necessary "new" parts. That's the motivation behind Windows 8.

      Intel recently released its Atom Z2760 code-named "Clover Trail" for the tablet form factor. Now, despite all of the doom-and-gloom from the naysayer crowd that Intel's chips don't have a prayer against ARM (ARMH) based tablets in terms of battery life and power consumption, Intel was kind enough to release some performance and battery life data against the Nvidia (NVDA) Tegra 3, Qualcomm (QCOM) Snapdragon S4, and ARM Cortex A9 clocked at 1.8GHz.

      A quick summary of the results:

      The Atom Z2760 was faster in the industry-standard SPECint benchmark than any of the ARM based solutions.

      The Intel-based tablet was more power efficient than the ASUS Transformer Pad Infinity (Nvidia Tegra 3-based) and the 2012 Apple (AAPL) iPad whilst coming in slightly less efficient than the iPad 2.

      While the individual data points don't matter all that much, the point here is that Intel, with its 4-year-old Atom core, built on its 32nm process, is able to hang with any of the ARM-based solutions available. It's officially in the game.

      The Main Concern - Pricing

      With all the nonsense about "X86 vs. ARM" out of the way (expect a full piece on this within the next week) with Intel's product offering strong performance and power consumption characteristics, it's time to talk about my real concern with tablets based on these products - pricing.

      While the ability of Intel-based tablets to run Windows 8 versus the more gimped Windows RT, it seems that these devices will go for $650 to $1,000 - putting them into iPad territory. Granted, these designs will have a faster processor, more RAM, and compatibility with all existing Windows applications, but it is still unclear whether the "tablet" form factor itself will be worth the premium to most users. Android tablet sales have only really happened at the low end with the higher end tablets going exclusively to Apple.

      In short - are tablets an Apple-fad, or do they represent a fundamental paradigm shift in personal-computing much as the shift from the desktop to the laptop was for the mainstream? The answer to this question will become clearer over the next several years.

      But wait: there's a lot more to Intel's tablet story than "Clover Trail." I'm going to dig deeper into the official road map as well as the leaked road maps to give investors an even clearer picture of just where Intel is going on tablets.

      Sentiment: Strong Buy

      • 2 Replies to wallisweaver
      • But wait: there's a lot more to Intel's tablet story than "Clover Trail." I'm going to dig deeper into the official road map as well as the leaked road maps to give investors an even clearer picture of just where Intel is going on tablets.

        Sentiment: Strong Buy

      • The Atom Tablet Road map - ValleyView

        The current Atom Z2760 is essentially a recycling of very old Atom technology built on a more modern manufacturing process. Despite this, the product is still likely to be very competitive with the very best ARM-based chips available this year - and it'll run full Windows 8, not the more limited Windows RT.

        But make no mistake: the current Atom isn't exactly several leagues above the solutions from the ARM-based vendors in terms of performance, functionality, or power consumption. Further, as the competition in the space heats up, margins will come under pressure, meaning that all the competitors in the space will need to look for ways to stay differentiated and improve margins. That brings us to "ValleyView" - the next generation Intel Atom.

        Thanks to our friends, EXPreview, a wealth of information was leaked about the next generation Atom via a number of PowerPoint slides that I will interpret from the investor's perspective:

        Slide 1 - The Highlights

        (click to enlarge)

        The first thing we notice is that the 2013 Atom line-up will have one, two, and four-core models rather than simply 1-2 dual-threaded cores. Another fact that stands out is that the graphics performance will improve by a factor of 4-7 times. Impressive! The next slide gets into some more technical details, but don't worry, I'll guide you through them.

        Slide 2 - More Nitty-Gritty

        (click to enlarge)

        All right, so there are a number of things we note here:

        Chip is built on the 22nm tri-gate process (well-known)
        64 bit support
        Support for up to 8GB of DDR3
        Intel is moving to its own "Gen 7" graphics - the same graphics cores found in the mainstream "Ivy Bridge" and "Haswell" processors rather than technology licensed from Imagination Technologies
        Memory Controller is integrated on-die
        The support for 64 bit is crucial as this will allow the Atom lineup to compete head-to-head with any potential threats from the ARM-licensee camp in the low power server space.

        More importantly, we see a move from licensed graphics technology from Imagination Technologies to Intel's internally designed graphics architecture. This is advantageous for a number of compelling reasons. First and foremost, this will improve the gross margin profile of the Atom chips relative to the current lineup as well as compared to peers. In fact, for the sake of constructing a tighter bull case, let's dig a little deeper into Intel's gross margin advantage with its Atom chips over the Snapdragon or Tegra:

        Intel owns its own, leading edge fabs that are also used to build PC and server chips - leveraging existing infrastructure while keeping things in-house. Qualcomm and Nvidia both rely on Taiwan Semiconductor (TSM) and margins take a hit here.
        Intel is now in control of both the CPU design, CPU instruction set, and the graphics architecture. Qualcomm designs its own ARM-compatible CPUs as well as its own graphics, but still has to pay ARM for the instruction set license. Nvidia uses ARM's off-the-shelf CPU designs coupled with its own graphics, so its gross margin profile likely looks worse than Qualcomm's.
        This now leads us to the next slide:

        Slide 3 - Market Segment Targets

        (click to enlarge)

        For the "Bay Trail" platform, it seems that there are three major segments: embedded, netbook/PC, and tablet.

        The interesting thing is that Intel is pursuing the car infotainment and industrial segments. While these won't push the volume or have the average selling prices of notebook/desktop chips, it is good to see Intel aggressively expand the Intel architecture everywhere.

        Further, the PC versions of ValleyView will give the lower end notebook and desktop spaces a kick-in-the-pants, likely in response to the threat of ARM chips trickling upwards into these segments.

        Finally, the tablet model seems to be the "cream-of-the-crop" with 4 cores running at 1.6GHz+. While it is still as-of-yet unknown what kinds of architectural changes that Intel has implemented in the latest "Silvermont" core, it is clear that with a clean-slate micro-architecture coupled with the very real threat from the ARM-licensees as well as Advanced Micro Devices (AMD), Intel will be very aggressive on the performance per watt metric.

        In short, Intel seems to be bringing its "A-Game" to the tablet space. This is all too reminiscent of the PC space back in 2003-2006, when AMD had a firm lead against an aging, lazy Intel micro-architecture. When Intel decided to start coming at it in full force, however, AMD lost its lead and has struggled to compete on a performance/watt basis since.

        Now, no bull case for Intel would be complete without a discussion of its high margin bread-and-butter: servers.

        Sentiment: Strong Buy

 
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