J.P. Morgan Tells Intel To Get Out Of Mobile

‘Get out of mobile’, is J.P. Morgan’s message to Intel. Mobile is a ‘money pit’ for Intel, says the bank.

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.”

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6 Comments

  1. david manners
    May 13, 2014 12:00

    Logically you’d think Intel should go for comms, Frank, but historically it’s made such a mess of its efforts to get into any kind of telecoms markets. Andy Grove was CEO when Intel first said it’s primary market was going to be telecoms and no longer computer. Since then it has struggled and struggled.. One thing that hobbles it is not using its latest processes for telecoms (mobile or fixed link) chips; another is that there is an incumbent architecture in mobile; another, I think, is that the telecoms people see what Intel did to the PC people and say ‘No way are you doing that to me’. You only get one chance to screw the industry, so they say.

  2. frank owen
    May 13, 2014 11:43

    I am not so sure that TI leaving the mobile comms market was a smart move. This cost TI about 5Billion $ in annual revenues in what was a good profitable business. The TI mistake was going into commodity low margin analog business and saying that they were going after home electronics and automotive to close the gap…segments that TI has tried to penetrate for 20 years with limited success. The second mistake was not using their comms knowhow and landing deals in WiFi, wireless LAN (in the home & office) and tablets.

    Intel should go after the comms opportunity and go full blast as that is where the growth and profits are. Sure they are late but the clock is ticking on PC sales and they are nowhere as a company today if they are going to rely on PC’s. Filling Fabs is only the beginning of their problems!

  3. david manners
    May 07, 2014 20:03

    Yes indeed, Mike, same thing at LTC where they were caned by the bankers for pulling out of mobile but were proved right to have done so. Nonetheless it’s interesting that Intel’s share price is moving up while all this talk about Intel exiting mobile goes on. Clearly someone’s expecting something.

  4. Mike Bryant
    May 07, 2014 18:48

    Actually it was one set of bankers who were pushing Intel to get into mobile sometime soon after the launch of the original iPhone or maybe iPhone2. I can’t find the articles on Google so it may not have been JPM but back then every company was being pushed on “how are you getting into the iPhone ?”

    Of course TI responded by shutting it’s mobile operation but everyone else listened to the bankers, and of course AMD’s CEO Dirk Meyer effectively lost his job after saying ‘I’m do nothing on mobile’. I think he’s been proven right.

  5. david manners
    May 07, 2014 17:56

    Right on, Stooriefit, the significance to me of JPM’s commentary is that the bankers’ analysts have listened to Intel’s case for pursuing mobile for quarter after quarter, year after year and now they’re saying: ‘We’ve run out of patience’.

  6. Stooriefit
    May 07, 2014 16:15

    A bunch of bankers coming out and saying this almost makes you want to say “stick with it Intel – we wish you every success!” … almost but not quite.

    Sadly I think JP Morgan might be right, but for the wrong reasons. There is nothing significant intrinsically wrong with Intel’s modem offerings, the problem is the fact that they are coupled to Intel’s x86 processors, which only compete on performance because they are made by a comparatively expensive process, and are burdened with a negative profit margin.

    If Intel wrapped their modems in as many dollars as they did their mobile processors (and by mobile I expect they mean phone and tablet processors, not laptops) they would clean out the market. They don’t though, because modems don’t help their fab utilisation, and they don’t want anyone using their modems with other ISAs because that doesn’t help their fab utilisation either.

    I can’t see a way to make the mobile business do what Intel wants it to do (increase fab utilisation and slow the march of ARM) without it haemorrhaging money. Even if they changed to an ARM ISA they would still be carrying their high process development costs on their fab expenses.

    JPM are right – the low margins of mobile do not suit Intel’s current business model, and I don’t believe anyone thinks they could change the business model radically enough to suit mobile without enormous risk to the whole enterprise.

    Intel’s problem is too many fabs, not failure in mobile processors or also-ran modems.

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