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As a results of this stance, other chip manufacturers like Advanced Micro Devices (NYSE:AMD) and ARM (NASDAQ:ARMH) have had a competitive advantage. Intel’s late entrance to the market enabled AMD to acquire the low-power server specialist SeaMicro in February, and helped ARM put its designs in the smartphones and tablets of Apple (NASDAQ:AAPL), Microsoft, and Google.
But analysts have expressed concern for Intel’s margins. As Raymond James analyst Hans Mosesmann stated in a recent research note seen by Forbes, the company could be heading for “a potential gross margin nightmare.” With the increasing popularity of lower-margin chips and rising competition from ARM in the microprocessor market, Intel could see its margins fall from the mid-60 percent range to the 50 percent range in the next two years.
CHEAT SHEET Analysis: Is This a Successful Product Pipeline?
One of the core components of our CHEAT SHEET Investing Framework requires that companies consistently produce successful products or services. In this case, Intel must determine whether the microprocessor market is worthy of pursuit. As GigaOm noted, Intel was used as a case study in Clayton Christensen’s 2011 book, Innovator’s Dilemma. According to Christensen, Intel would be “happy to concede the low-end, non-profitable market to their disruptive competitors.” However exiting that market could potentially leave the company without several of its largest clients and exclude it from the growing cloud computing industry.
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