Intel (NASDAQ:INTC), one of the biggest names in the chip manufacturing business, has been under some pressure for quite some time now. Despite having more than 80% share in the PC chips market, the company still faces some major challenges, going forward. The main challenge for the company is to get a major chunk of the market for tablets and smartphones.
The PC market has been on a continuous decline and shipments dropped 11% QoQ in the second quarter of the year. Intel's biggest competitors include Qualcomm (NASDAQ:QCOM) and NVIDIA (NASDAQ:NVDA), which already have a relatively strong hold in the tablets and smartphones market.
With a market cap of over $111.8bn, Intel is currently trading around $22 to $23. The company's latest earnings report came out below industry expectations as it reported a revenue of $12.8bn against expected earnings of $12.89bn. The company's shares dipped over 3% after it failed to beat industry expectations and lowered its Q3 earnings estimate.
NVIDIA, with a market cap of around $8.76bn, is currently trading around $15. During the last couple of months, the company has been trading at a relatively stable range of $14 to $15, near its 52 week high of $15.48.
Qualcomm, on the other hand, is currently trading around $67 to $68 with a market cap of around $115.19bn. The company's shares have been on a constant rise since July, when it was trading below the $60 mark, especially after its third quarter sales beat market expectations.
Why Intel Still Finds Itself Behind In The Tablets Market
Intel's late entry into the market, along with Qualcomm and NVIDIA's strong existence, is one of the major factors why Intel doesn't have a strong grip on this particular market. After falling behind the two competitors in powering Google's Android based tablets, Intel might well be falling behind Qualcomm in the market for Windows 8 tablets, a place where Intel was getting stronger.
Qualcomm's snapdragon 800 processor already supports the Windows 8.1 RT OS, which is why it is likely that we see several Qualcomm based Windows RT tablets hitting the markets very soon. Qualcomm's combination of various elements into one chip still makes it a dominant force in the industry, ahead of NVIDIA and Intel. If Qualcomm can force its way into greater smartphones and tablets in upcoming years, its market presence is likely to worsen the position of Intel and NVIDIA.
NVIDIA, despite showing a relatively slow earnings growth, is also a major threat to Intel in the emerging tablets market. After falling behind Qualcomm in the LTE connectivity range, NVIDIA finally got on board with its Tegra 4i chip. The company did achieve some success with the previous Tegra chip, especially since the Google Nexus 7 tablet and Tegra 4 based devices are likely to hit the market quite soon. The company is currently trying to focus more on the gaming side, especially after its project shield console. The company's upcoming Tegra 5 or Logan processor will be the key factor in determining NVIDIA's future and will help shape mobile gaming.
Why Intel Has The Potential To Improve
Despite falling behind competitors, Intel's CEO Bryan Kraznich is certain that the company will improve its position in the tablets market. Kraznich admitted that the company wasn't proactive and slacked off in the "ultra-mobile" market. That being said, the company's latest Haswell and Bay Trail chips are likely to power several upcoming tablets and convertible PCs. These 2 latest Atom chips are likely to improve Intel's market presence significantly, especially after the negativity on Intel's current Atom chips, used in several Windows 8 tablets and convertibles.
Aside from being power efficient, the processors are likely to be up to three times faster than the current Atoms in the market. The company believes that Atom is definitely a beginning rather than the end of Intel's entry into power efficient chips. The latest chip offerings from Intel will contribute to a large number of convertible tablets, a market which has a strong future growth potential.
Also, Intel finally decided to get on board with LTE connectivity after unveiling its Multimode LTE chips. This will be a huge factor in getting a greater market share and even though it won't affect Qualcomm in a major way in the short term, it could definitely help the company catch up to competitors very soon.
The Silvermont Atom lineup is also something to be optimistic about as this might finally help Intel's atom processors to reach their full potential. The new Atom will help the company improve its position in ultramobile, but will also help it enter newer markets and get to price points which were not in reach before.
Why Intel Could Be A Great Buy
One of the reasons why I believe Intel might just be the ideal long term investment opportunity is because of Piper Jaffray's new report on the rebound of the PC market. Analysts believe that PC shipments could go up by as much as 5% in the upcoming year, which could boost Intel's revenue stream. Intel's newest Baytrail processor should also help shipments improve in the near future as hybrid PCs might finally start to pick up pace. The major contributing factor would be Microsoft's strategy to improve and upgrade the Windows XP platform, as well as Windows Server and Exchange 2013.
While analysts are certain that the PC market rebound is on its way, there's still uncertainty to when this is actually going to happen. However, Intel's current dividend yield is just over 4%, which is one of the best yields in the tech industry. This doesn't only help Intel maintain its image as a great dividend paying stock, but this will also help keep shareholders happy until the PC rebound process begins.
Lastly, if Intel can make a significant breakthrough in the industry for tablets and smartphones, then revenue and profits are likely to jump significantly. This will, obviously, take some time but this is what makes Intel an ideal long term investment opportunity.
Intel definitely has the potential to dominate the ultramobile and tablets segment in the near future but it will have to face major challenges, going forward. While Intel is in no position to kick out Qualcomm and NVIDIA any time soon, it can capture a strong market share with its upcoming line of atom processors.
The tablets and smartphones market is still a relatively new market which will grow further in upcoming years and Intel might just find itself in a leading position once the market reaches its potential.
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.