Intel Corp (INTC)

[wbmw]

Bay Trail has a bloated BoM, so I don't think that product will ever end up in ultra cheap devices profitably

You're missing the big picture. Bay Trail can be used to win designs, after which Intel can transition to lower cost platforms over time. Meanwhile, selling these chips into tablets, even at a loss, will do the following:

- Fill the fabs and improve utilization, which will offset the margin loss from contra revenue
- Make it easier to keep those designs for the next generation Cherry Trail
- Make it harder for their competitors to fund R&D that pays for the next generation of designs

You are probably correct that Bay Trail won't be margin accretive this year, but assuming Intel keeps those designs next cycle, 2015 could see significant margin growth, and leave them well positioned for a strong tablet ramp with Broxton.

I also see tablets as a reasonable beachhead for phones, and believe Intel's strategy will be to capture some targeted tablet vendors, and grow a phone business by partnering with those same vendors.

Again, the longer term prospects are sound.