Intel (INTC) was upgraded by Lazard Capital Markets to buy from neutral with a price target of $26 because it believes margins should improve for the company after the first quarter, while ultrabooks should drive growth for the remainder of the year. If ultrabooks should drive Intel in 2013, what does the year look like for sales of these mobile computers?
Ultrabook Forecast for 2013
DRAMeXchange, a research arm of the Taipei-based advisory firm TrendForce, said in a report that the ultrabook market size could exceed 30 million units in 2013; sales should increase by 30% from this year and account for a 17% share of the notebook market. Ultrabook makers have struggled to reduce their retail prices to the mainstream level because of the high costs of key components, such as solid-state drives (SSD), thin displays and metal casings, the research firm said. In 2013, however, ultrabook shipments are expected to take off as costs of these components continue to decline and Intel places more focus on developing processors for ultrabooks.
This will help Intel in 2013 but as an investor, if I am looking at the company past 2013. I know the mobile market is going to be the key to Intel's future success. Qualcomm is the big boy in the mobile chip market Intel has to go up against.
Qualcomm and Intel Bump Heads
Intel and Qualcomm (QCOM) are journeying closer and closer to becoming main competitors. QCOM is the dominant player in the mobile chip market right now, but what may help Intel is the difference in brand name recognition. QCOM is just a component in a smartphone right now whereas Intel was a brand name in itself because of its highly successful "Intel Inside" campaign. It became a brand preference for consumers as they shopped PCs. Intel has to transform that brand name recognition into the mobile market while Qualcomm looks to create a band name for it. It is kicking off a theme called "Born Mobile" intended to build brand name awareness to protect itself from Intel's invasion.
Smartphone manufacturers may welcome Intel, with open arms, as an alternative to the Qualcomm monopoly on LTE/4G modems and it could also relieve supply constraints. But the challenge is huge for Intel. It has already proved it can build an integrated (Systems on a Chip) for mobile. The Intel Atom Medfield processor, when tested side by side with the Qualcomm Snapdragon S4, demonstrated equal software capabilities and power efficiency. Qualcomm has already proved it can deliver (Systems on a Chip) and (baseline modems) and manufacturers are familiar with its superior products. Intel has to perform well and inch its way into the market. Qualcomm is already on its second generation LTE/4G release and experimenting with the third while competitors are releasing first generation processors.
What are Intel's plans to compete with Qualcomm? Steve Patterson wrote an article and said this about Intel's strategy:
To close the gap, Intel will apply to smartphones and tablets the significant systems-level design capability that it honed when nearly monopolizing the X86 PC and server business. Intel will deliver smartphone reference designs that will allow manufacturers to produce complete optimized smartphones using Intel's components.
The mobile processing market is expected to consolidate and shakeout competitors. For this reason, Qualcomm may not see any direct market thievery from Intel right away. 2013 looks like it will continue to be a building year for Intel in the mobile market. What does this mean? Personally, I think the company will continue to research and build a strong foundation for the future but for 2013 to be a powerfully bullish year, I think it may rest upon the popularity of Windows 8 and not so much the mobile chip market yet.
What does INTC have going for it? I wouldn't be surprised if the long-term regression of PC sales is already priced in to the stock. Microsoft (MSFT) is marketing its Windows 8 like crazy with countless devices that have Intel inside of them. If the response to Windows 8 grows in popularity, we will see it in Intel's numbers also. The dividend rate of 4.2% still is a favorite stock to look at for income investors.
Intel's low in November marked a turn around. How long will this last? Well the RSI and the MACD indicator both showed a strong positive divergence, which usually means we are going to see a trend reversal coming. Intel moves slow, but the stock appears steady. If we observe the Bollinger Bands, the recent low barley touched below the middle band. This is promising because the stock may continue to move up now. First major resistance level is at 22.25. It is not moving up quickly.
The Options Play
The stock is trading at 21.45
- Buy the March 2013 call with a strike of '22' (priced at $0.50)
- Net Debit to Start: $0.50
- Maximum Profit: unlimited
- Maximum Risk: net debit
- Maximum Length of Trade: 8 weeks
Reasoning behind the Play
- Market looks mildly bullish and Intel looks like it can move up after it breaks through resistance.
- I expect Window's 8 to carry the stock early in the year.