Intel Corporation (NASDAQ:INTC) is a whale in the drying sea of desktop and notebook systems. The company controls an estimated 83% of the sales of processors in that market, and has stayed ahead of its competitors in processing power, and fabricating technology. Intel shares are down more than 20% in the last twelve months. how do these two statements match?
The firm is the biggest and most prestigious player in a market that is no longer fashionable, and no longer growing. The traditional PC market is shrinking, and may be destined to disappear. Intel Corporation (NASDAQ:INTC) needs to delve into the territory of its competitors, and expand into the mobile chip game.
There's nothing new here. The market for mobile computing chips has expanded rapidly since the introduction of the iPhone in 2007. The ubiquity of smart phones, and the introduction of tablets, has propelled that growth forward. Intel has not kept up, and this is beginning to put a strain on investor confidence.
There are few worries on the technology side of the company's business. Intel is working on introducing 22 nanometer chips to the market in 2013, and 14 nm chips as early as 2014. Each generation of chips is faster and more efficient than the one that precedes it. The problem for Intel is geting mobile manufacturers interested in using its processors over the tried and tested versions of competitors.
Those competitors, most notably, ARM Holdings plc (NASDAQ:ARMH), Advanced Micro Devices, Inc. (NYSE:AMD), QUALCOMM, Inc. (NASDAQ:QCOM) and NVIDIA Corporation (NASDAQ:NVDA), are old hands in the mobile processing market. Intel needs to convince manufacturers that moving to its new chips, a risky move, is worthwhile. That process could, take longer than anticipated.
The biggest hope for Intel Corporation through 2012 was the introduction of Windows 8 powered devices late in that year. Sales of devices running the new operating system were solid in the fourth quarter, but were by no means exceptional. Intel needs to do more than just supply chips to Windows devices, it needs to convince Android manufacturers to use its chips.
That will be a hard sell for the company, despite the impression that the company will produce better processors than its competitors in the coming years. The company's Atom processors are currently used in a total of seven devices. In a world inundated with smart phones and tablets, that's very small.
Intel Corporation is laying out a lot of money, $13 billion, in the next twelve months on capital expenditure, increasing its ability to manufacture better mobile chips. It needs to recoup that sunk cost by increasing the numbers of devices its processors can be found in. The sales department of the company, rather than the more often talked about research department, is the most important for the year ahead.
Better technology drives sales, but it does not guarantee them. For various reasons the best technology does not always win. In the case of Intel Corporation (NASDAQ:INTC) the problem may be that the firm has simply arrived too late to the market.
Windows 8 is not going to solve Intel's problems. Devices on the operating system still have an uncertain future, but it is impossible for Intel to rely on them to provide its own future safety, particularly with a version of the software designed for the processors of its competitors. Intel needs to dive into the mobile market unchained by Microsoft Corporation (NASDAQ:MSFT).
Investors don't seem all that confident the company can turn the game around, but things are getting better. The firm's shares are up more than 2% for the year so far, lagging the S&P 500, but still positive.