New Intel Processors + New Microsoft CEO = Wintel Rising?

Aug.30.13 | About: Intel Corporation (INTC)

Intel Corporation (NASDAQ:INTC) stock is up over 8% in 2013, and hedge funds want in. The company has promising new chips targeting perceived competitive gaps in the ultra-mobile and tablet segments. These new processors might define a whole new future for Intel.

The company's past already includes the monopoly-like lock they once had on the personal computing (PC) market as a part of "Wintel" - Microsoft Windows operating system working through Intel chips.

Could these Intel product breakthroughs, combined with Microsoft (NASDAQ:MSFT) CEO Steve Ballmer recently announcing he'll step down, mean Wintel is rising again?

Look who's buying Intel...

At the end of the second quarter, 58 important hedge funds were long on Intel, up 7% from the previous quarter:

  1. Natixis Global Asset Management holds $1.6 billion; 3.4% of their portfolio.
  2. First Eagle Investment Management has $862 million; 2.6% of their total.
  3. Fisher Asset Management bought $451 million during the quarter.

Other major funds took new positions in the stock. (Insider Monkey) What do these big money guys see in Intel?

Reasons to sell Intel

The stock may look cheap compared to the S&P 500, and their new technology appears ready to beat back the competition, but consider the downsides:

  1. 63% of Intel revenue comes from its PC client group segment.

  2. Analysts expect a 12% decline in 2013 earnings, growing just 5.9% in 2014.

  3. Its new Bay Trail chip would need a price one fifth of the current Intel processor average to compete in the ultra-mobile space.

Increase in volume might offset a future decline in processor average selling price, but a $22 processor just "doesn't have as much available profit as a $107 chip." (The Motley Fool)

What do hedge funds investors see in Intel?

Wintel held a 96 percent global market share in PC operating systems around the year 2000. Their share fell to 35 percent in 2012 with the rise of operating systems from Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG). (The Atlantic)

But Wintel's share remains the largest by far.

Intel has an 80% share of the PC chips market, a market that dropped 11% quarter-over-quarter. But a recent report from Piper Jaffray predicts a rebound of the PC market, with shipments going up by as much as 5% in the upcoming year.

Is the demise of the PC exaggerated?

Intel's late entry into the ultra-mobile market, along with stiff competition from Qualcomm (NASDAQ:QCOM) and NVIDIA (NASDAQ:NVDA), has left it seemingly behind in this segment of the market:

  • Qualcomm's Snapdragon 800 processor supports the Windows 8.1 RT operating system, making several Qualcomm-based Windows RT tablets likely to hit markets soon.
  • NVIDIA's Tegra 4i chip and Tegra 4-based devices likely to hit the market soon make it a real threat in the emerging tablets market.

These are daunting indications, certainly, unless you remember the greatness of Wintel's past.

Intel might lead once again

Intel's new Haswell and Bay Trail chips are far more power efficient, and up to three times faster, than the current Atoms. They should contribute to development of a large number of convertible tablets, a market with strong future growth potential. Meanwhile, their:

Intel's current dividend yield is already one of the best in the tech industry. If it can make a significant breakthrough in the industry for tablets and smartphones, revenue and profits could jump. (Seeking Alpha)

Then we have Steve Ballmer announcing he will step down as CEO of Microsoft.

Could this mean Wintel rising?

With an upcoming line of new processors Intel has the potential to lead the ultramobile and tablets segment, just as it led the PC revolution with Microsoft for so many years. Now Microsoft has taken a great step in the leadership department, too.

Whoever takes the reins there might unlock the future potential for a rising Wintel.

This won't just be about Microsoft's strategy to improve and upgrade the Windows XP platform, or Windows Server and Exchange 2013. It could mean an overall strategic approach to achieving dominance again over the upstarts.

If Wintel rises, so does Intel stock.

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.