Earlier this year, Intel (NASDAQ:INTC) marked its entry into the lucrative smartphones and tablets segment, a market that has so far been dominated by ARM-based players such as Qualcomm (NASDAQ:QCOM) and Nvidia (NASDAQ:NVDA). Intel has been a force to reckon with in the PC microprocessor market for the last two decades, and we believe its entry in mobile computing is a good long-term strategy to stay abreast with changing consumer trends.

While ARM Holdings (LSE:ARM.L) claims not to be threatened by Intel’s entry in this arena, the fact that over 20 Intel-powered tablets are in the works should be a cause of concern for ARM-based tablets. Hewlett-Packard’s (NYSE:HPQ) recent announcement of steering clear of ARM processor-based Windows 8 RT and instead focus on Intel’s x86 architecture for developing tablets proves that Intel is making headway in the market. (See: HP Steers Clear Of Windows 8 RT On Compatibility Concerns) Additionally, the company announced during Computex 2012 that almost all of its Atom-based systems – tablets or notebooks – will be Windows 8 compatible.

Atom processors currently contribute around 2% to Intel’s revenue, by our estimates. However, considering the exponential growth in smartphones and tablets and Intel’s growing focus on this division, we expect the revenue contribution to go up to 6% by the end of our forecast period.

See our complete analysis for Intel

HP Gives Windows RT A Miss

Earlier this month, HP confirmed that it will abstain from ARM processor-based tablets and instead focus on Intel’s x86 chips for Microsoft’s upcoming Windows 8 OS. The HP TouchPad based on the WebOS was HP’s first attempt at gaining tablet market share and was suspended last year due to poor performance. Nevertheless, HP has a 5% share in the tablet market, according to research firm IDC. ^[1]

The company plans to play it safe and, as a response to customer feedback, it will use Intel-based Windows 8 OS which will be able to run the full range, including the current and older versions of Microsoft office.

Where Does Intel Stand in the Smartphone & Tablet Market?

As a relatively new player in this segment, Intel currently holds an insignificant market share. But, we believe that it has made good progress so far. It marked its entry in the coveted segment with the launch of the first Intel architecture phone by Lava International. (See: Intel Dials Up $31 With Smartphone Push And Intl. Growth) The company has continued with the pace with the subsequent launch of two more Intel-powered smartphones last month – Lenovo LePhone 800 and Android smartphone code-named “San Diego”. (See: Intel Launches Lenovo & Orange Smartphones To Seize Mobile Opportunity)

Last month, Microsoft introduced its in-house tablet Surface, which is powered by Intel Core i5 chip. Additionally, the company has around 20 Intel-powered tablets in the works, expected to be launched in the coming year.

We estimate Intel’s revenues from this division to almost triple and the market share to reach around 9% by the end of our forecast period. Apart from the exponential growth in smartphones and tablets, we think that other new Atom-based devices such as Google TV, car infotainment systems, home and business energy management systems will improve Intel’s Atom processors  share by increasing its available market.

Our price estimate of $30.62 for Intel stands at a premium of above 10% to the current market price.

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1. IDC:iPad maintains tablet dominance, HP’s TouchPad fire sale burned brightly, December 16, 2011 [↩]