Rise of the tablet may be a blow to Intel, says Goldman Sachs

Focus on iPad, other tablets prompts investment firm to give Intel 'neutral' rating

Tablets are making such a mark in the computer market that they just might start giving the world's largest chip maker a good bashing.

That's the word coming from an analyst at investment firm Goldman Sachs, which on Monday released a note to investors discussing that subject. While Wall Street has been upgrading Intel's stock ratings recently, Goldman Sachs analysts predict that the rise of tablet computers will hurt the chip maker.

"This rush of iPad competitors is not surprising in itself, as Apple tends to regularly define the direction of the electronic media and computing industries," wrote Goldman Sachs analyst Bill Shope. "What is surprising is that many of these products are not utilizing Intel microprocessors or a Microsoft operating environment."

Intel declined to comment.

Shope predicted that 54.7 million tablets will be shipped in 2011, and that the "vast majority" will feature ARM architecture with either Apple's iOS or Google's Android as the operating environment.

"If this is the case and our tablet forecast is anywhere near accurate, this would be the first time in three decades that a non-Wintel technology has made legitimate inroads into personal computing," he added.

Shope also noted that computer manufacturers are doing more business with rival chip makers, perhaps creating further difficulties for Intel.

"We believe Intel will face increased processor competition," he wrote. "Given Intel's 3% dividend yield, resumed buyback, and the 81% increase in November short interest, we remain Neutral rated on the stock."

Dan Olds, an analyst at Gabriel Consulting Group, said he too sees tablets playing a bigger role in the consumer and enterprise markets, but he's hesitant to say that the rise of tablets will curtail PC sales.

"Intel, while undeniably dominant in processors today, is definitely moving into interesting times in the Chinese-curse sense of the term," Olds said. "They face burgeoning competition from netbook and smartphone devices that are fueled by inexpensive ARM chips. Volumes of these products are growing at a very fast clip."

However, Olds said, it's unclear if these devices will be substitutes for traditional PCs and laptops.

"If someone buys a netbook, is that replacing their laptop or is it an additional, new computer?" he asked. "I tend to think that while some users will be happy with netbook products, the majority will eventually see the need for having a more powerful device that will handle more tasks, like laptops powered by Intel chips."

Olds added that a Neutral rating from Goldman Sachs isn't a huge blow to Intel.

"To some extent, financial models from stock analysts tend to give too much weight to trends, extrapolating growth too far into the future and assuming that higher sales of one product mean fewer sales of another product," he said. "This isn't necessarily true."

Sharon Gaudin covers the Internet and Web 2.0, emerging technologies, and desktop and laptop chips for Computerworld. Follow Sharon on Twitter at @sgaudin, or subscribe to Sharon's RSS feed . Her e-mail address is sgaudin@computerworld.com.

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