Will Its Google Partnership Save this Chip Maker?

Let's revisit an ongoing catalyst from the reinvigoration of Intel . About this time last year, Intel and Google announced a non-exclusive multiyear strategic relationship to push Intel atom chips in Android-based smartphones. Fast forwarding to the fall, when Google's Motorola Mobility announced the release of the Razr line of devices. The U.S. version, the Motorola Droid Razr M, would get the Qualcomm snapdragon chip, and the Droid Razr I that would be sold overseas would carry Intel hardware.

At the time of the Droid Razr release, it was speculated that Intel would look to roll out a 4G LTE chip in early 2013 that was more capable of competing with the Qualcomm chips. LTE capabilities made the decision an easy one for Motorola on the U.S. devices, where this functionality is critical. By Christmas, DIGITIMES was reporting that Intel was planning the release of a brand-new smartphone platform in an effort to compete more directly with both Qualcomm and ARM Holdings on design. As Intel continues to press hard on the smartphone and mobile markets, the shares that were down nearly 16% in 2012 look like a solid value and a buy for your portfolio.

Focus on Android
When you consider the dominance of the Android operating system on a global basis, the decision by Intel to forge a close relationship with Google makes a lot of sense. According to research firm IDC, Android commands an impressive 68.3% of the global smartphone market as of 2012. This compares to 18.8% for Apple's iOS and 2.06% for Windows-based phones. While this lead is expected to drop to 63.8% by 2016, even with iOS ticking up to 19.1% by that time, Android is the top player.


Android's importance, particularly outside of the U.S. where the LTE capability is less important at this point, should allow Intel to continue to build market share. Travis McCourt of Raymond James explains that "there are parts of the world where a smartphone is simply a touch screen with an effective web browser, and in those parts of the world, Android is dominating." The fact that the Intel x86 architecture is becoming an increasingly viable and competitive option for smartphone makers should make a big difference for the company heading into this year. Indications point to significant efforts from both Intel and Google to make this a reality, and illustrate the depth of the growing relationship between the two firms.

A slow start
While the lack of a LTE option from Intel (to date) has led to a slow start for chipzilla in the smartphone arena, it is achieving critical strategic events. The inclusion of the company's Medfield chip in the Razr I may have failed to produce "huge shipment volumes," but it provided Intel with a solid base upon which to build. The company needed to show that it had a system on a chip that was capable of competing with ARM, and the chip was successful in establishing this in the marketplace.

You may recall the skepticism with which the entire Android platform was initially viewed when it was first introduced. Google demonstrated then, as it may demonstrate with its partnership with Intel, that steadily building a presence in the market is a more successful approach that shooting to unseat the top contender out of the gate. ARM designs -- particularly those put together in collaboration with Apple -- and Qualcomm Snapdragon LTE-integrated chips are leading the way, but Intel should not be overlooked.

One of the critical areas of differentiation that may allow Intel to get meaningfully into this fight is the company's expertise and talent in fabrication. Where Qualcomm and NVIDIA must each rely on Taiwan Semiconductor for fabrication, Intel is a runaway leader in this department. Qualcomm's reliance on a partner for its fabrication needs caused it significant problems last year. Both companies, plus Apple, had pushed the manufacturer to allot dedicated fabrication plants to each company's respective efforts; these requests were refused. In a recent speech at the Consumer Electronics Show, Qualcomm's president and COO, Steve Mollenkopf, said he does not expect shortage issues to repeat, but it is an area to pay attention to moving forward.

Overall, Intel's close working relationship with Google has already been a positive catalyst for the chip maker in its efforts to become significant in the smartphone market. If Intel is able release a viable LTE option this year, maybe even having it included in the rumored Google X-Phone, the company should become a serious contender in the space. Given this effort, as well as Intel's diversified talents, the stock is a buy in my eyes for your portfolio for 2013.

When it comes to dominating markets, it doesn't get much better than Intel's position in the PC microprocessor arena. However, that market is maturing, and Intel finds itself in a precarious situation longer term if it doesn't find new avenues for growth. In this premium research report on Intel, our analyst runs through all of the key topics investors should understand about the chip giant. Better yet, you'll continue to receive updates for an entire year. Click here now to learn more.

The article Will Its Google Partnership Save this Chip Maker? originally appeared on Fool.com.

Fool contributor Doug Ehrman has no position in any stocks mentioned. The Motley Fool recommends Apple, Google, Intel, and NVIDIA. The Motley Fool owns shares of Apple, Google, Intel, and Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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