If you want to understand why Intel (INTC) isn't Microsoft (MSFT) -- which is a good thing right now -- you don't need to look any further than the product announcements coming out of the Intel Developers Conference that ended today.
Yes, both Microsoft and Intel are struggling with what looks like not just a slowdown in PC sales growth -- but also a market shift away from desktop computing and toward mobile devices from tablets and smartphones. PC unit sales are now forecast to drop 9.7% percent in 2013 and to go on falling in 2014.
But Microsoft is moving away from its strengths and expertise in software -- buying Nokia (NOK) and going into the tablet hardware business. That is because its traditional PC hardware partners have themselves fallen so far out of the mobile race.
Intel, however, is continuing to do what it does best -- manufacture chips at increasingly smaller sizes. That doesn't mean that Intel faces an easy job in getting those chips designed into products by the new masters of the hardware universe such as Samsung. But it does mean that Intel has a good chance to jump start revenue growth again by 2014.
So what did Intel announce this week?
First, there was Quark, a new line of tiny systems on a chip. The key here is that the Quark line is intended for a market that is just emerging. Intel isn't playing as much of a game of catch-up here as it is in smartphones and tablets because the devices will make up this market are just themselves emerging.
The Quark line is targeted at the developing market for an "internet of things" and "wearables." The Quark is extremely small and will use very little power. The chip is about one-fifth the size of Intel's current smallest chip, the Atom, and uses about one-tenth the power. Some of the uses cited by new Intel CEO Brian Krzanich included Internet-enabled appliances, wearables and medical diagnostics so small they could be swallowed.
Intel expects to have reference boards ready in the fourth quarter. The market for all wearable technology, including smartwatches, will more than double to $18.8 billion in 2016 from $9.3 billion this year, according to market researcher IHS.
The company also announced Bay Trail, Intel's 22-nanometer system on a chip for low-end PCs and tablets, and the next generation Atom chip, Merrifield, for smartphones and tablets. Intel said that those chips will start showing up in devices next year. Intel's next generation LTE product, the XMM 7260 modem, will hit the mobile phone market in 2014.
Behind those chips is another generation of chips manufactured with 14-nanometer technology mobile devices instead of already cutting edge 22-nanometer technology. Moving to that new process will enable Intel to pack more processing power onto an even smaller chip that uses even less power.
The company's Broadwell 14-nanometer system on a chip is due to start shipping at the beginning of 2014. Devices running the new Broadwell are projected to show a 30% power improvement over the current Haswell Core line.
None of this will allow Intel to claw back market share in the mobile device market from its competitors overnight. But Intel does seem to have a good understanding of what gaining design wins in this market will require: lower prices, lower power consumption and faster speeds. CEO Krzanich said tablets using Atom chips will be available for less than $100 in the December 2013 shopping season,
Bears on Intel right now are looking for the company and its stock to implode as PC unit sales continue to fall. That has certainly set expectations very, very low.
I think the current consensus that sees revenue falling in 2013 from 2012 levels is, however, too pessimistic. Revenue is more likely to be flat with 2012. That would only be a good performance on current pessimism. Revenue could, however, actually show some growth in 2014. It won't be huge growth -- maybe something like 3% to 5% growth. By that time, though, it's likely that the market won't be expecting any growth at all from Intel.
The shares, by the way, currently pay a 3.97% yield.