Intel (NASDAQ:INTC) CEO Brian Krzanich announced on November 21, 2013, at the company's annual investor meeting that it will be expanding its small contract manufacturing business, which lifted the stock over 2.5 percent. This decision will allow other chipmakers, including competitors, to have access to the world's most advanced computer processing. The news was refreshing to investors who have been troubled by Intel not keeping pace with chip competitors like Qualcomm (NASDAQ:QCOM) and Samsung (OTC:OTC:SSNLF) for smartphone and tablet chips.
A Flat Bright Future
Intel's revenue is currently not affected much by contract manufacturing, but this strategy to provide its technology to big clients for mass production of mobile processors could change that. It's a new approach for Intel to manufacture chips for other semiconductor companies, which could help the company's top line. The deal fueled speculation that Apple (NASDAQ:AAPL) might even start using Intel chips instead of Samsung chips for its mobile devices.
Krzanich also tried to excite investors for his first annual speech by saying that even though PC sales have declined in recent years, he believes this trend is bottoming out. He clarified guidance that revenues for 2014 will be flat but that falling PC sales will be balanced by more server sales. To combat the PC slump, the company plans to increase its investment in tablet chips while reducing its investment in PC chips.
He is also optimistic about expanding the number of tablets with Intel chips by four times the current level in the next year. He says that the price range for these tablets will be less than $100 and over $400. He believes Intel's chips for tablets have improved since he took over as CEO in May 2013, replacing the retired Paul Otellini, who was more hesitant to open Intel's factory to other companies beyond non-competitor Altera. To add even more optimism to the announcements, the company unveiled two Atom mobile chips that allow interchangeability of its features, which it will release in the future.
The investor meeting was filled with talk about upcoming innovations as Krzanich made it clear that the company is shifting gears to feed investor appetite for innovation. Another development he bought up was "perceptual computing" for 2014. This type of gesture and speech recognition will be a 3-D experience. He also mentioned that he expects transistor parts to shrink from 25 to 10 nanometers by 2015. That same year Intel will release a chip he called Broxton, which is the "next-generation Atom" designed to improve high-end mobile devices. SoFIA will be for lower priced smartphones and tablets and be available in 2014.
Bill Holt, who is head of Intel's semiconductor manufacturing, was critical of competitors who were ignoring Moore's Law, which is a technical theory that predicts the time frame for reducing transistor size. He believes that the company will take the lead in scaling chips and improving cost-per-transistor, which will help optimize low-power mobile devices. In other words, Intel will be working on increasing the density of chips.
No Mention of TV
Earlier in the year during Otellini's reign, there was ambitious talk about a new media dimension for the company to manufacture TV boxes known as OnCue that could stream original (better than cable and satellite) programming. But this concept has fizzled under Krzanich, who wants to focus more on computer processing technology. There was no mention of this development at the meeting and there is now speculation that Intel might sell this project to a big company like Verizon (NYSE:VZ). Intel announced earlier in the year it planned to open retail stores in New York City, Los Angeles and Chicago to sell OnCue. The stores will still be opening for the holiday season from November through January, but will be selling mobile devices instead.
Investors were euphoric over Intel's long list of announcements, which pushed the stock up from $24.50 to $25.25 throughout the trading day of the meeting. It then pulled back in after hours. It appears that the stock has regained some strength like it did in June and rose to similar levels. The stock is trading above 13 times earnings, so it may have more territory to climb as investors seem to have renewed confidence in Intel. At the same time, Qualcomm COO Steve Mollenkopf seemed to dismiss Intel's determination to compete in the mobile chip space in a recent interview.
Even though Intel is the overall champion of semiconductor companies, and by far the most important manufacturer of chips for supercomputers, it has been overshadowed in the race to make the fastest chips for the fastest selling computers, which are now mobile devices, not PCs. Intel has acknowledged that it has fallen behind in this race, but appears to be addressing the remedy, which could help the stock.
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