iPhone’s Component Ecosystem: Intel

In this post, we will be analyzing Intel as part of the series on the major players in the iPhone’s component ecosystem. In the iPhone, Intel provides a wireless flash with 32 Mbytes of NOR coupled with 16 Mbytes of SRAM for code execution.

Intel Corp. (Nasdaq: INTC) is the world’s largest chip manufacturer with revenues of $35.4 billion and 94,100 employees in 2006. Its core products include microprocessors, chip-sets, motherboards, flash memory, wired and wireless connectivity products, and communications infrastructure components. Its operations are organized into Digital Enterprise Group, Mobility Group, Flash Memory Group, Digital Home Group, Digital Health Group, and Channel Platforms Group.

Digital Enterprise Group accounted for 56% of its consolidated net revenue in 2006 and sales from microprocessors within the group accounted for 41% of its consolidated net revenue.

Mobility Group accounted for 35% of consolidated net revenue in 2006 and the sales of microprocessors within the Mobility Group made up 26% of consolidated net revenue. To focus on its core businesses, Intel sold its Xscale communications-chip division in the Mobility Group for $600 million to Marvell Technology Group, Ltd (MRVL) in Q4 2006.

Flash Memory Group made up 6% of its consolidated net revenue in 2006 and most of this revenue came in from the NOR flash memory products. It formed a joint venture, IM Flash Technologies, LLC, in 2006 with Micron (MU) for manufacturing its NAND flash memory products. It invested $1.3 billion in 2006 for a 49% in the venture. Earlier this year, Intel, STMicroelectronics (STM), and private equity firm Francisco Partners announced an agreement to form a new independent company by combining Intel’s NOR flash memory business and STMicroelectronics’ NOR and NAND flash businesses.

Another investment that Intel made in 2006 is worth $600 million in Clearwire Corporation (CLWR), a wireless Internet provider.

For its second quarter of fiscal 2007, Intel reported revenues of $8.7 billion, operating income of $1.35 billion, and earnings per share of 22 cents. This is a year-over year increase of 8% over the revenues in Q2 2006 and a decline of 2% compared to the previous quarter revenues. For the third quarter of fiscal 2007, Intel expects revenues of $9 to $9.6 billion.

Following the launch of the iPhone and release of teardown reports, Intel’s stock rose 53 cents, or more than 2 percent, to $24.27 on July 2nd. It is currently trading at $24.72.

Intel lost out on the processor design win in the iPhone but is working on a low-power, high-performance chip that could be used by iPhone’s competitors. In the long run, Apple shaking up the convergence device marketplace will play in Intel’s favor, as PC and laptop makers prepare their own counter to the iPhone’s ambition as a laptop replacement device. At the moment, the main issue that I have with the iPhone as a laptop replacement is the keyboard.

Intel’s Ultra Mobile PC initiative is the one to watch as these trends start taking shape. As I mentioned earlier, with extreme miniaturization, Power becomes a massive problem, and there are only a few companies with more low-power design capabilities than Intel. Of course, TI is another.

At the end of the day, Intel’s big win will come not from providing a piece of Flash to Apple, but more from the iPhone’s positive impact on the Ultra Mobile PC movement. [Related reading: iPhone and the Future]

As a final point, I would note that after a somewhat schizophrenic stance on the issue, Intel has recently joined MIT’s Nicholas Negroponte’s non-profit One Laptop Per Child (OLPC) initiative. The viability of this project, also, has major power supply and power consumption related concerns, and uses a processor from competitor, AMD. My guess is, Intel will learn from this project, and figure out its own for-profit strategy for the Ultra Mobile, Ultra Low Cost PC market.

This segment is a part in the series : iPhone’s Component Ecosystem