Intel (NASDAQ:INTC) has expertise and leadership in microprocessor and electronics components design. However, a design lead does not automatically transfer into a market leader without the right marketing and monetization strategy. Intel's recent news and developments reveal apparently smart partnerships with clients and other electronics companies that could push Intel stock into bullish territory. However, its weakness in the PC and mobile markets are substantial weights on INTC stock price.
Fundamentals, Product Developments and News
Intel's 22nm Intel Atom SoC will be part of the latest tablets manufactured by SanDisk Co (SNDK). Demand for these faster, better-performing tablets is projected to be quite robust. If so, Intel could use the boost. Quarterly sales growth has been negative since the second half of 2012. Net income has mirrored this downward trend, with quarterly YoY losses greater 20%. Admittedly, Intel's quarterly gross margin has held steady so far at roughly 55%. However, that has boosted the all-important EPS out of negative territory. EPS is projected to become positive again in 2014, but such predictions are always tentative. Remember that Intel is dependent on PC sales and overseas demand for a substantial portion of its total revenue stream. Domestic PC sales continue to lag at the expense of mobile computing. Chinese and other Asian demand is mild, at best.
Despite Intel's lackluster recent performance, the company is pushing ahead with new product development. Senior VP and General Manager Diane Bryant presented a new data center architecture that combines high-quality sensors and improved network and storage capability. This storage capacity and the network surrounding it are meant to be flexible as much as it is powerful. Since Intel relies on a variety of clients, flexibility is a constant theme in Intel's component design.
The company's executives seem to be trying to leverage Intel's design and manufacturing strengths to facilitate beneficial collaboration with other technology companies in hopes of piggybacking on their success in various niches of the electronic market. For instance, consider Intel's partnering with Arrow Electronics (NYSE:ARW). The two companies worked together to launch "x86 Influence Program," a comprehensive analytics and training system that helps clients direct sales strategy through proof-of-concept simulations and post-sales customer assistance.
Operating and net income have remained more or less steady for the last three fiscal years. Pointedly, Intel's Research and Development has steadily increased from 6.58B to 10.15B between the end of FY 2010 and FY 2012. This investment in research corresponds with equipment purchases mentioned in the Balance Sheet overview. Such behavior hints at a systematic push for new designs and products that may bode very well for Intel's future. (Yahoo Finance)
Prominent Competition Analysis
Intel has an EV/EBITDA ratio 5.59 and enterprise value of 112.93B in FY 2012. Looking at the competition, Advanced Micro Devices (NYSE:AMD) has a comparatively abysmal EV/EBITDA ratio of -13.60 due to an EBITDA of -282.00M. Intel has a strong competitive advantage over Advanced Micro Devices and can push this financial strength and grab more of Advanced Micro Devices's customers and revenue streams. Texas Instruments Inc. (NYSE:TXN) is another prominent Intel competitor. Its EV/EBITDA is 11.96, more than twice that of Intel. However, TXN's EV is 46.28B, only 41% of Intel's EV. Unlike AMD, Texas Instruments has healthy EBITDA and profitability percentages slightly higher than Intel's. Texas Instruments and Intel seem to be "neck to neck" in terms of management effectiveness and overall profitability. Investors can use each company as an approximate gauge of the other. If earnings predictions for Intel and TXN are substantially different, it can be a sign for Intel investors to reconsider their estimates.
When it comes to technology companies, investors have to be prepared for a new product or innovation that could launch earnings much higher than anticipated. Consider Intel's recent announcement that it "sees humans as the ultimate mobile platform." The company imagines sensors and gadgets that work in the background and try to optimize a customer's day-to-day life. If Intel is successful and becomes the sole provider of this new type of mobile technology even for a short time, it will very likely grow its EPS beyond current expectations. On the other hand, Intel fell behind on smart phones, tablets and is still being dragged down by the tepid PC market. Overall, Intel stock is likely to remain flat, meriting a "Hold" recommendation.
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.