Intel’s shares have risen recently after it decided to report its mobile results separately. The results were so bad – losing $929 million on sales of $156 million – that many people believe that reporting the results separately is a precursor to closing the mobile operation.
If it does close mobile down, the earnings per share will improve dramatically says J.P.Morgan.
“Shutting down wireless could unlock $0.50 in 2015 EPS,” says J.P.Morgan, “if Intel were to shut down its Mobile and Communications business, we estimate it would unlock roughly $0.50 of EPS in 2015.”
The bank adds: “We continue to believe Intel will lose money and not gain material EPS from tablets or smartphones due to the disadvantages of x86 versus ARM and overall low profitability of the tablet and handset processor market, even if Intel were to gain 25% of the tablet and smartphone processor market over the next three years, we estimate it would contribute $2.8 billion (5%) revenues, but result in a loss of roughly $0.18.”
J.P.Morgan believes that Intel should follow TI’s example in jettisoning wireless. “In 2008, TI decided to exit a large wireless business due to profitability concerns, and re-focus its efforts on the higher margin analog and embedded businesses, where it has an advantage,” says J.P.Morgan, “consequently, TI is currently achieving new highs in gross margins and EPS, and trades at a premium to the S&P500. We believe Intel should follow TI’s lead and exit the mobile business, and focus on the PC and foundry businesses where it has an advantage.”
Qualcomm, says J.P.Morgan, is “nearly two years ahead of the industry . . . . . . we believe Qualcomm’s leadership in LTE has enabled the company to easily stave off competitors such as Broadcom, Intel, NVIDIA and Marvell that offer inferior LTE modem technology.”