Best Bet: Intel or Microsoft?
09/17/2013 9:00 am EST
These two big tech companies are facing challenges in the years ahead but MoneyShow's Jim Jubak explains why he has a favorite.
If you need a reminder that Intel isn't Microsoft, the Intel's announcement of a new line of chips called Quark, on September 11, should be a good place to start. Now Microsoft—it's in a really kind of bind, because what they seem to have to do to move away from their dependence on PC software, is to help the PC industry make the transition onto a whole new set of devices, so they bought Nokia, they've done a tablet, they're pushing these devices. Well this is a software company that has to do investments in hardware in order to get the hardware companies to move up fast enough, so they can create a new market force. You could argue, and I would, that Microsoft is moving away from its traditional strengths in software, into a field where, despite the success of the Xbox, its record is kind of mixed. Remember the Zune—okay.
Intel, on the other hand, has got a similar problem, that PC sales are slowing; that the market seems to moving away from the desktop to mobile, whether it's a Smartphone or a tablet or an iPad-like device and Intel's been relatively late in coming to this market, so it doesn't really have much market share. It doesn't have chips that are very popular, haven't been designed in. It's really trailing people like Qualcomm and ARM Holdings. The Quark however, shows, I think, that Intel doesn't need to go out and start making devices. The Quark is a line of smaller, lower powered chips designed for a new emerging market and this is the sort of embedded market, the idea that you're going to have intelligent refrigerators that will be somehow connected to the internet and a part of that or intelligent posters. The Quark is actually small enough so that Intel says one of the uses could be ingestible diagnostic devices—medical devices that give readings on body conditions that you can actually swallow and give you a reading from the inside about certain processes. The whole point is that this really plays, not to Intel's moving to another area, but to Intel's strength.
Intel's a great manufacturing company. Its big advantage is that it's one of the few companies that actually both manufactures and then sells chips after it's designed them. Unlike say, a Qualcomm, which uses Taiwan Semiconductor as its maker of chips foundry, so Intel is able to drive processes, manufacturing processes, so the Quark is going to be 22 nanometers, moving down to 14, which means you can actually put more on a smaller chip and that really plays to Intel's strength. Intel's very, very good at driving design to smaller and smaller, getting good yields out of this and leaving his competitors a generation behind. Taiwan Semiconductor is certainly no slacker on this. Intel uses them as a second source in many cases, but there aren't a whole lot of companies doing this. So if you're looking at Intel, yes Intel's got a problem. Its strength in the PC area is a strength in a market that's showing sign of slowing, if not actual decline. It's been late into the mobile game. It's trying hard to catch up but it's dealing with entrenched competitors and really good competitors, Qualcomm and ARM, but that it can use its strengths, use the things it knows how to do to move into new markets, unlike Microsoft. So if you're looking at the companies where the roadmap is relatively simple and plays to your existing strengths, I think Intel—yes; Microsoft—a much, much harder job ahead of it.
This is Jim Jubak for the Moneyshow.com video network.
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