Intel Is Helping Amazon Build Its Alexa Artificial Intelligence Kingdom – Seeking Alpha

Intel (INTC) found a major customer for its inventory of Atom x5 processors and RealSense cameras. Amazon (AMZN) has chosen Intel to help it improve on its industry-leading and trendsetting product, the Alexa-powered Echo smart speaker. Copycat products from other firms are threatening the projected $10 billion revenue contribution by 2020 of Alexa AI and Amazon Echo devices.

Amazon therefore asked Intel to supply its $21 Atom x5-Z8350 processor inside the new Echo Show and Echo Look smart home assistants. The Echo Show is Amazon's equalizer to Apple's (AAPL) upcoming music-centric HomePod smart speaker. Like the HomePod, the Echo Show touts better music listening experience with its Dolby speakers.

Unlike Alphabet's (GOOG) (NASDAQ:GOOGL) Google Home and Apple HomePod, the Intel-powered Echo Show has a touchscreen 7-inch LCD display and a 5 megapixel camera. It is also capable of making voice calls to anyone with an Amazon Echo or Echo Dot device.

(Source: AMAZON)

Why Amazon Needed Intel

The original Amazon Echo speaker only used a digital media processor. Amazon opted to buy Intel's laptop-level processor, the Atom x5-Z8350, for its latest Alexa Artificial Intelligence-enhanced smart home assistant. Amazon was the pioneer of voice-controlled smart speakers, but competition from Apple and Google is forcing it to innovate outside the old voice-command focus of Alexa.

The more powerful Atom x5-z8350 SoC (System-on-Chip) transformed the Echo Show to a full-pledged computer that can stream/display information and media entertainment to people.

This is a necessary move to keep Amazon a step ahead of imitators like Google and Apple. While its rivals are still focused on voice-centric smart home assistants, Amazon is already evolving to vision computing-friendly home appliances.

What's In It For Intel

Calculating the potential benefit to Intel is easy. Amazon has a loyal army of 80-million strong Prime subscribers. They are all potential future buyers of the $229 Echo show. The original Echo sold more than 11 million units. Amazon can probably sell 10 to 20 million units of the far more advanced Echo Show every year.

Amazon is not a Shenzhen-based Chinese tablet manufacturer. I'm assuming that Intel will charge $21 for each Atom x5 processor.

$21 x 20 million units = $410 million

Getting $410 million of new business from Amazon can help on interest payments over Intel's $20.67 billion long-term debt. Further, Intel is also the processor and camera supplier for the Amazon Echo Look smart fashion assistant. The Echo Look is equipped with a Intel RealSense SR300 camera with depth-sensing technology.

(Source: Amazon)

Aside from being able to take photos and record videos, the Echo Look allows users to get fashion style recommendations from Amazons Style Check AI service. The Echo Look is a machine-learning fashion device that can appeal to women and metrosexual males. I expect Amazon to sell 5-10 million units of the Echo Look every year.

Husbands and boyfriends will likely buy the Echo Look just to accelerate their lady love's decision on what clothes/accessories to wear. I'm married. It is very annoying to waste 20-30 minutes waiting on my wife to make up her mind what she should wear just to go to the grocery store.

(Source: Amazon)

We can guesstimate that Intel charges $25 for each SR300 camera module. If Amazon can sell 8 million units of the Echo Look every year, Intel can receive another $276 million.

Other Possible Benefits From The New Partnership With Amazon

Going forward, Intel will also probably/eventually supply Atom processors for future models of Amazon Fire tablets and Fire TV products. Amazon has enabled Alexa on old and new Fire tablet models. The Alexa Voice Remote also transforms Amazon Fire TV sticks into smart digital assistants.

Amazon is now the third-largest vendor of Android tablets. Persuading Bezos to switch to Atom tablet application processors should add more to Intel's topline. Amazon's Q4 tablet sale was 5.2 million units. Amazon's Fire TV are also the second most-popular smart TV dongles in America, with 12% penetration of U.S. Wi-Fi enabled households.

Supplying RealSense cameras and Atom processors to Amazon's Alexa devices can possibly contribute $1 billion+++/year of new revenue to Intel. Furthermore, I expect Google, Lenovo (OTCPK:LNVGY), Samsung (OTC:SSNLF) to also eventually copy the Echo Show and Echo Look. They might consider using Intel Atom processors and RealSense cameras too.

Conclusion

Amazon's decision to use Atom processors and RealSense cameras is a good reason to stay long INTC. The x86 Atom may not have succeeded as a smartphone application processor, but it is now being adopted in machine-learning Internet of Things devices.

Amazon's choice of an Atom x86 processor (rather than an ARM one) for new Echo devices also helps erase the scar of Intel's ill-fated $10 billion gamble on mobile application processors.

Going forward, I hope the pricey acquisitions of Altera and Mobileye can lead to Intel getting hardware supply business for Amazon's AI cloud platform. Altera's FPGAs can compete with GPUs in parallel computing-heavy deep learning applications.

I am long INTC and AMZN. Even though my Intel exposure is notably larger, I'm not embarrassed to admit that I made more money on AMZN. Intel hitching its wagon to high-flying Amazon's Alexa star might help INTC climb higher than $38.

(Source: Google Finance)

Disclosure: I am/we are long INTC, AAPL, AMZN, GOOG.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Intel Is Helping Amazon Build Its Alexa Artificial Intelligence Kingdom - Seeking Alpha