Microsoft (NASDAQ:MSFT) held a big Surface event earlier this week, unveiling the latest generation of its computer hardware. As you would expect, Intel (NASDAQ:INTC) got some air time with its 10th-generation Core chips. Microsoft even showed off a hinged tablet coming in 2020 that features the all-new Intel Lakefield processors. But… The most exciting products at the Surface event ditched Intel altogether and instead, Microsoft put competitors Advanced Micro Devices (NASDAQ:AMD) and Qualcomm (NASDAQ:QCOM) in the spotlight.
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Having competing processors in the most buzz-worthy new Microsoft Surface products sent a big message about the challenges facing INTC, helping send Intel stock down 2.7% on the day.
Microsoft announced refreshed versions of many of its Surface laptops and 2-in-1 tablets on Wednesday. The Surface Pro 7 and Surface Laptop 3 get an upgrade this year to 10th-generation Intel Core processors. The all-new Surface Neo — a dual-screen tablet with a hinge and detachable keyboard — was unveiled for the first time. This featured the new INTC Lakefield processor, 10nm chips with a new 3D architecture that’s designed to deliver the combination of power, efficiency and battery life needed by mobile devices.
Lakefield is a big part of Intel’s future and its success is going to have a big impact on INTC stock. Having the Lakefield processor showcased with the new Microsoft Surface Neo tablet is a big deal.
Looking Beyond the Surface
As cool as the Surface Neo is, the device has been rumored for years and people were half expecting it.
What they weren’t expecting was the Surface Duo. Looking like a tiny version of the Neo, it’s actually a dual-screen, hinged smartphone. It’s not running Windows 10, it’s running Android. And it’s not powered by Intel, it has Qualcomm’s Snapdragon 855 processor inside.
Microsoft also unveiled a new take on its Surface Pro 2-in-1 tablet called the Surface Pro X, and this one is even more worrisome for INTC. Why? Because the Surface Pro X has a larger display than the Surface Pro, it has longer battery life, it has LTE included as a standard feature, it’s lighter, and it’s significantly thinner. Like the Surface Pro 7 it runs Windows 10. But instead of Intel inside the new Surface Pro X, Microsoft partnered with Qualcomm to design a custom ARM-based chip called the Surface SQ1.
Making things even worse for INTC was the new 15-inch Surface Laptop 3. The smaller version of the laptop gets those 10th-gen Intel Core chips, so all is good there. But Microsoft showed off a new 15-inch model that it’s positioning as a premium powerhouse, able to run circles around the class-leading Apple (NASDAQ:AAPL) MacBook Air and even outperforming the MacBook Pro. There’s no Intel chip inside the 15-inch Surface Laptop 3. Instead, Microsoft worked with AMD on a semi-custom version of its mobile Ryzen processor.
A Microsoft Set Standard is Bad News for INTC Stock
Microsoft is seeing some nice revenue from sales of its Surface hardware, but the Surface products serve a much more important purpose. The company uses them to explore new form factors and capabilities that lead the way for traditional PC manufacturers to follow. They become almost a reference design.
Based on this week’s Surface event, INTC and anyone who has invested in Intel stock should be more than a little worried.
AMD’s Ryzen processors have been eating into Intel’s desktop market share, but haven’t had the same success with laptops. With Microsoft adopting a Ryzen processor for its most powerful Surface Laptop 3, that could change. And while other PC manufacturers have experimented with ARM-based chips in ultraportable laptops for several years, with the Surface X Pro and its SQ1 mobile chip, Qualcomm’s profile in the Windows PC laptop space just got a huge shot in the arm.
The Surface Duo is technically a smartphone, so it’s not really encroaching on INTC territory. However, the buzz over the device and Microsoft’s return to mobile added to the chatter that Qualcomm enjoyed and overshadowed the relatively boring news about the Surface devices that got incremental Intel processor upgrades.
Intel dropped below $50 to close at $49.39 on Tuesday for a 2.7% loss. It regained some of that on Wednesday and Thursday, but INTC stock is up just over 6% on the year. Another way to look at the Intel stock price is it has lost a third of its value since the peak of the PC market. Microsoft’s Surface event — with Qualcomm and AMD chips in the spotlight — signals the decline of Intel’s share of the remaining PC market may start to accelerate.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
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