Shares of Intel (INTC) are down $28 cents, or 1%, at $25.12, after Sterne Agee’s Vijay Rakesh cut his rating on the chip maker to Neutral from Buy, with a $26 price target, writing that although the company has “executed well” in the last year, it faces “substantial” competition this year from computers running chips based on ARM Holdings (ARMH) designs running Microsoft’s (MSFT) Windows, a development known as “Windows-on-ARM,” or “WARM.”
In fact, Rakesh believes a “paradigm shift” is going on that marks the first breakup of the classic “WinTel” structure in PCS:
We believe based on our checks that the leading PC ODMs are working with�Qualcomm QCOM-Texas Instruments (TXN) on Snapdragon-OMAP-based NB platforms since October-November. Our checks also indicate that almost 10-15% of the mix could move with Win8 to ARM-based platforms. We are conservatively modeling 5% in 2012 and 10% move to ARM from x86 in C2012. Unlike Netbook platforms the PC OEM and ODMs can make better margins similar to x86 on the newer ARM platforms given a new cost-licensing structure on Win8. Given new innovative low-cost platforms with Win8-ARM, we believe there could be some headwinds to growth in the core x86 NB market. We believe this is the first structural disruption in the Win-x86 PC market.
Although both Intel and Advanced Micro Devices (AMD) are affected by this shift, if true, Rakesh sees AMD being actually a little better off, as it’s “better equipped to adapt to a change in architecture given the company�s fabless strategy.”
“We also believe new CEO Rory Read has indicated that management would not rule out making changes based on the company�s focus on customer demand.”
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