Intel: Rockchip Deal Sign of Struggle, Says Raymond James – Barron’s (blog)
By Tiernan Ray
Some Street observers this afternoon were reflecting on Intel‘s (INTC) announcement today it is casting farther afield to arm itself the battle for mobile computing, partnering with Taiwan’s Rockchip, makers of processors that often go-into low-cost tablets based on Google‘s (GOOG) Android.
Intel said the partnership will allow it to speed up the rate at which it brings to market its “Sofia” line of chips for tablets, including “entry and value Android mobile devices.” Intel says a quad-core processor with integrated modem in the Sofia line will be available in the first half of 2015.”
Hans Mosesmann of Raymond James, who rates Intel shares Underperform, writes this afternoon that the deal was a surprise, and that the company may have run up against obstacles to a goal put forth by Intel CEO Brian Krzanich to have Intel chips in 40 million tablets this calendar year:
The deal will likely be viewed as curious by the Street, but we suspect not impactful for the shares. Given the sudden nature of the announcement and the more “tactical” nature of the relationship (we see nothing particularly strategic here, as there is no 4G or Intel foundry involvement), we would tend to believe Intel is seeing this 40 million tablet goal in 2014 as a no-walk-in-the-park exercise. We do believe that if indeed Intel is struggling in tablets (or not), it is nice to see the CEO host a hastily organized mid-quarter conference call. Obviously, Intel’s focus on mobile is very, very important to senior management.
The Benchmark Company‘s Gary Mobley, who follows shares of ARM Holdings (ARMH), and rates them Hold, writes that the prospect of an Intel-based part entering the segment of the tablet market is not good for ARM:
While the PR surrounding this Intel/Rockchip announcement is somewhat vague, the implications for ARM Holdings may be viewed as negative. Rockchip has significantly grown mobile application processor share during the past few years as the company’s ARM-based chips have benefitted from the boom in the sub-$150 tablet and smartphone markets. The implication from Tuesday’s announcement is that Rockchip is going to also sell Intel-based (e.g. Atom-based) mobile application processors alongside existing ARM-based chips. This relationship with Rockchip represents Intel’s latest attempts to crack into the tablet processor marketplace, an effort that has yielded little results thus far (~6% market share for tablet processors).
Rockchip, with 10% share of tablet processors, is a good pick for its established relationships, but he wonders how much Intel will have to subsidize it:
The new SoFIA chip may be based on Rockchip’s graphics (e.g. ARM Mali) and interconnect cores. This will be one of three SoFIA chips offered by Intel. The quad-core, 3G SoFIA chip to be developed/marketed with Rockchip will be in the market in 1H CY15. The idea, according to Intel chief executive Brian Krzanich, was to quickly expand into China and take advantage of Rockchip’s established relationships with tablet makers there. What Rockchip gets out of the relationship is an mobile processor with an integrated baseband, thus supporting Intel’s strategic rationale for maintaining its baseband modem development efforts (again, positive for CEVA) [...] It is hard to imagine how the quad-core, Intel-architected SoFIA processor in question can be price competitive with an ARM-based processor targeted at sub-$150 Android tablet computers. The Intel SoFIA integrated processor must be at least 2.0x the cost of Rockchip’s recently launched quad-core Cortex A12 apps processor, thus bring into focus how much Intel may be willing to subsidize its entry into the tablet market. It is also worth noting that not all Android tablets sold by Rockchip’s customers will require 3G connectivity.