Intel (NASDAQ:INTC) released Q2 results in line with my forecast a couple of days ago with revenue of $12.8 billion (forecast $12.7 billion) and margins 58% (forecast 58%). The company made a minor adjustment to its forecast for the balance of the year. While the stock fell off a bit after hours, the universe is unfolding as it should and bullish investors can look to any weakness as a buying opportunity. Readers are encouraged to read the full earnings release.
They key to Intel prospects going forward is its massive push into mobile. When I wrote my article setting out the bull case for Intel a few short weeks ago there were 130 tablets listed that had "Intel Inside." Today, the Intel web-site products section lists 171 tablets containing Intel processors.
The site also lists 404 Ultrabook models; 2,168 laptop models; 706 desktop computers and 255 all-in ones all bearing the "Intel Inside" logo. A large number of these devices now sport the Intel 4th-generation processors known as Haswell and Silvermont. Computer manufacturers using Intel processors include Asus, Acer, Dell, HP, Samsung, Fujitsu, Sony, and Lenovo, not to mention Apple, which has announced a Haswell powered Mac Book Air.
The thesis is simple and there is nothing complicated or technical about it. If Intel can capture a meaningful share of mobile, the stock will reward investors. If it can't, it can't.
The technocrats, god bless them, can argue about who's processor is faster, or uses less space, or draws less power, or costs less, or has more functions on the chip, and those are all important factors in getting the business, but from an investment point of view they are not the issue. The issue is whether Intel succeeds in obtaining enough orders for its chips to make it worth the candle.
There are big markets to win and big forces in play. Consumers will soon all own more than one tablet and we will see discarded first-generation ones litter basements and recreation rooms of our homes, if not already. They may be designed for Android, iOS or Windows and a few of them for Unix, Linux or even OS2 if it is still in use in industry. Do we care? Not really. We just want to see Intel capture some serious volume.
In my view, one thing is certain. We all want more computing power. Anyone who can remember using a computer running an Intel 286 processor knows what I mean when I say we all want more power. The 286 facilitated a great CPU in its day and no one would buy one today. Sure, consumers are happy to use their iPad or Android tablet and put up with not much power while they run apps that require little, watch the odd video or surf the Internet, log on to Facebook and Twitter and read an email or two. But over time, they will want more.
Every developer will do what developers do - add new functions and capabilities to make their software more engaging, more fun to use and more productive. They will access larger and larger data bases because there is no upper limit to the amount of information we want to store and access at random. Each time they "improve" a program, they add lines of code. Each time they enhance the user interface, they add more and more graphics, animation, colors and pixels. And each of these needs more power to satisfy our never ending desire for instant gratification. The old "hourglass" seems to have disappeared from the modern computer but it will return if the processing power does not keep up with the software's incessant need. More processing power means one thing in my view - it means more demand for Intel products - because no one has yet been able to match the power or performance of a device using the latest "Intel inside" chips.
That is why I am long Intel. That is why the negative reaction to the minor earnings "miss" at the end of a cyclical decline in demand for Personal Computers and in the first innings of a shift by Intel into mobile devices creates such a compelling opportunity. The analysts look back or at best a quarter ahead. But the real money is made by investors with vision.
By now you probably have guessed - I am bullish on Intel.
Additional disclosure: I hold calls on 260,000 Intel shares maturing on various dates through January 2015, and I am short 10,000 Intel shares as hedge (I am sometimes wrong!)