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Intel Chip to Power Galaxy Tab 3

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It has been rumored that the world’s largest manufacturer of semiconductor products, Intel Corp’s (INTC - Free Report) processor has been chosen to power a new version of one of Samsung Electronics’ top-tier Android tablets, according to Reuters.

Reportedly, Samsung will use Intel's Clover Trail+ mobile chip for at least one version of its 10.1-inch Galaxy Tab 3.It is still not clear whether Samsung plans to introduce other versions of the 10-inch Galaxy Tab equipped with its own processors or that of other companies. Earlier, all Samsung devices were powered by ARM Holdings plc's chips.

Despite being one of the largest chipmakers, Intel’s main business of making processors for PCs is seeing sagging demand. This can be attributed to the increasing customer shift toward tablets and hybrids. Though Intel is well ahead of its closest rival Advanced Micro Devices (AMD - Free Report) , its new products and even Ultrabook laptops have so far failed to excite consumers.

In fact, Brian Krzanich, Intel’s new chief executive officer, stated that the chipmaker is primarily focusing on expanding its footprint in the mobile market. The company is preparing itself for the emerging mobile segment and is trying to get its chips into new hardware. The company is also gearing up to ship its next-generation processor, Haswell, which is expected to drive Intel’s success in the mobile segment.

A new survey on tablets released by IDC this week shows that the tablets market continues to expand at a healthy rate. Easily exceeding numbers for the entire first half of 2012, tablet shipments for the first quarter of 2013 came in at 49.2 million units for the first quarter of 2013.

Though Apple Inc. (AAPL - Free Report) continues to lead the pack, with a market share of 39.6%, Samsung holds the second place with a market share of 17.9%. Samsung grew year over year by a whopping 282.6%.

Even a single version of Galaxy Tab 3 based on an Intel chip is a big deal for the chipmaker, as Samsung is the world's second largest manufacturer of tablets. We believe this win will give Intel a chance to prove that its Atom chip has the right combination of power and efficiency to compete in the growing mobile market and thereby help Intel to capitalize on the existing opportunity in the mobile market. The next version of the product is likely to be even better.

Intel is also the leader in process technology with the capacity to ship in high volumes, which could be the reason Samsung picked Intel instead of its own chips. The fact that Clover Trail+ can be used in both Windows and Android devices could also have influenced the decision. If successful, the companies will likely expand their relationship, which is exactly what Intel is looking for.

Intel has a strong market position and technology lead and continues to show solid execution.

The company delivered decent first quarter 2013 results. The top-line numbers for the quarter were within the guidance range and slightly better than normal seasonality, while the bottom line was slightly disappointing.

Although the decline in PC demand will affect results in the upcoming quarter, we believe that the focus on the mobile segment, adoption of new products, growth in data centers and new offerings should help Intel get back on track.

Intel shares carry a Zacks Rank #3 (Hold). Another stock in the sector that is performing well currently is STMicroelectronics (STM - Free Report) , carrying a Zacks Rank #2 (Buy).

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