Intel Corp (INTC)

[VeeCee]

Intel will cut mobile losses in 2015
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3:42 PM ET
Intel Can Cut Mobile Losses in 2015, With or Without Apple, Says Susquehanna
By Tiernan Ray

Susquehanna Financial Group’s Chris Caso today reiterates a Neutral rating on shares of Intel (INTC), and a $30 price target, writing that his talks with management last week suggest to him Intel has a good chance to reduce losses in its mobile chip division, currently running at about $1 billion per quarter.

Intel should see less of a burden in subsidy dollars in 2015, which it has been using to help make its chips more competitive. Also, he thinks the company may see more success with its baseband wireless chips versus Qualcomm (QCOM) with or without business from Apple (AAPL):

INTC expects improved profitability in their mobile/ communications business in 2015 as they begin to sell some product against existing losses. INTC is losing about $1 bln a quarter now in mobile, with the business being impacted by the fall off of 3G business as the market transitions to 4G in addition to the well-publicized contra revenue in tablets. However, next year INTC has several tailwinds: 1) Contra revenue will diminish greatly in 2015, though perhaps not go away entirely; 2) the company will sell some 7260 baseband chips starting in 3Q (while INTC did not comment on design wins, our own conversations with Samsung indicated they intended to use INTC’s 7260 in the mid-range of their lineup); and 3) INTC will begin to sell SoFia (integrated AP/baseband for smartphones and tablets), although they have modest initial expectations for SoFia in 2015. We believe INTC is also targeting AAPL as a potential customer, which seems logical since AAPL used an Infineon modem in their early 3G phones. Given the timing of when the 7260 was sampled to customers (in early 2014) we think this makes the 7260 at least eligible to be considered for the iPhone 6s cycle in 2015. And even if 7260 doesn’t get wins in iPhone, it will apply pricing pressure to QCOM since this is their first real competition. The first SoFia chip, a low cost dual core processor for the low end 3G market is due out in 4Q14. It will be followed by a quad-core LTE product in 1H15, and then a quad core 3G product done in conjunction with Rockchip a quarter later. Initially Sofia will be produced at TSMC on 28nm before being brought in-house in 2016, and eventually moved to INTC’s 14nm process. INTC expects to achieve better profitability in their comms business in 2015 as SoFia ramps and contra revenue fades.

Note that Caso’s remarks are more bullish than remarks today by Cowen & Co.’s Timothy Arcuri on the subject of baseband, and Apple.

For the stock to go higher, Intel stock depends on a continue rebound in PC sales, thinks Caso. He notes several arguments the company made in defense of a continue return to health for PCs:

In addition, they believe improved products with more attractive form factors and extended battery life are driving the large installed base of older PC users to finally upgrade their systems (INTC previously noted that there was an installed base of 600 mln PCs more than 4 years old). INTC believes tablets are exhausted in mature markets, with people who want one already owning one. They think tablets are not yet exhausted in emerging markets, with those markets maybe 6-9 months behind. In addition, INTC indicated that they are hearing good things on Window Threshold (aka Windows 9), which fixes many of the issues on Windows 8 and believes it could be a driver for the industry when it is released.

Intel shares today are up 45 cents, or 1.4%, at $33.05.
http://blogs.barrons.com/techtraderdaily/2014/08/11/intel-can-cut-mobiel-losses-in-2015-with-or-without-apple-says-susquehanna/