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Samsung (OTC:SSNLF) has recently announced the release of its flagship Galaxy Tab 10.1 tablet incorporating the Clover tail+ processor from Intel as well as the Intel 4 G LTE modem. ARM Holdings plc (NASDAQ:ARMH) completely dominates the processor market for tablets and smartphones while Intel Corporation (NASDAQ:INTC) has been spending a lot of money to make inroads into this market, and this is the first time that a major tablet maker is using an Intel processor. It indicates that Intel is now ready for a major push into mobile devices and augurs well for its future. In another piece of good news, the world's second-largest PC maker Lenovo (OTCPK:LNVGF) has launched its flagship K900 smartphone using an Intel chip.

Intel's efforts to produce processors with a focus both on performance and battery life mark a shift from its earlier focus purely on performance. The chips are designed so that they will consume less power for computing tasks such as browsing, while consuming larger amounts of power for tasks such as gaming. The reduced overall power consumption should make Intel a major player in the mobile devices market, where performance per watt of power counts more than sheer performance. Intel is launching two new chips, Haswell and Silvermont, aimed at the mobile processing market in addition to an LTE chip. According to the company the Silvermont processor can provide three times the processing power of competing models with only 20% of the battery usage. Other chip makers are 'fabless' companies, and rely on foundries for their manufacturing requirements. Intel has these capabilities in house and enjoys significant advantages of scale and cost because of its large investments in manufacturing over the last few years.

The world smart devices market

Based on estimates from IDC, the 2013 market consisted of 918 million phones, 191 million tablets, 134 million desktop computers and 187 million laptops. IDC's forecasts for the future include lateral movements for desktops and laptops with rapid growth for phones and tablets. By 2017, there will be more than 1.5 billion smartphones and over 350 million tablets. In contrast to its total dominance in the desktop and laptop market, Intel's share of smartphones and tablets was a tiny percentage. According to some estimates, the company has the potential to increase its share of the smart phone and tablets market to 15% and 20% respectively.

First-quarter 2013 results

The company reported revenues of $12.6 billion, operating income of $2.5 billion and net income of $2 billion resulting in an EPS of $0.40 per share for the quarter. Cash generation from operations was roughly $4.3 billion of which $1.1 billion was used to pay dividends and another $533 million used to fund share repurchases. Revenues from the PC Client Group were $8 billion down 6% year over year and 6.6% over the preceding quarter. Data Center Group revenues at $2.6 billion were down 6.9% over the preceding quarter but up 7.5% from the prior-year period. Other Intel Architecture Group revenue of $1.0 billion was down 3.9% over the preceding quarter and down 9% year over year. Gross margin at 56% was down 8% year over year and 2% from the preceding quarter.

The future outlook

For the second quarter of 2013, revenue is projected at around $12.9 billion (+ or -$500 million) with a gross margin of 56%. Spending on R&D and other expenses is expected to be $4.7 billion. For the full year 2013, revenue is expected to show single-digit growth with gross margin projected to be approximately 60%. Total spending is expected to be around $19 billion while capital spending at approximately $12 billion is expected to be $1 billion lower than previous guidance.

The bottom line

Intel is currently quoting at around $24.92, which translates into a P/E [TTM] of approximately 12.5 times. By the end of 2015, earnings are expected to experience reasonable growth and result in an EPS of $2.95 per share compared to the 2012 EPS of $2.13 per share. At the current P/E, which is low, this would translate into a share price of approximately $37.00 per share. However, success in penetrating the smartphone and tablet markets should surely result in a higher multiple (and EPS) which, even if it is as low as 13.5 times, would result in a share price in the region of $40. If you consider that the five-year average for the multiple is 16 times, the share price could be as high as $50. Given the track record of Intel and its considerable technical and financial resources, the potential for growth in the share price is considerable.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.