I very rarely like to talk about the price action for Intel (INTC) at this point since I've already laid out my long-term thesis. Fundamentally, nothing has really changed; I believe that as Intel rolls out competitive products, it will rapidly gain share across all of the segments of computing that it plays in. The company's modems are looking a lot better, its apps processors are now much more competitive, and there is absolutely no doubt in my mind that by 2015, Intel's viability in this business will no longer be in question.
However, I realize that while I may have this level of conviction, my readers and - more importantly - the market may not, and it's important to give you (my reader) the tools you need to make an informed investment decision. I am not blind to the fact that Intel's guidance for 2014 was incredibly poor, and I am not blind to the fact that the opportunity cost to owning shares in this raging bull market is incredibly high. Believe me, as somebody with roughly 30% of his portfolio in this stock, I am seeing firsthand the dilutive effect it has had on the performance of the other 70% of my portfolio.
Starting 2014 Off With A Whimper
So, I'm going to tell it to you straight: I think Intel, at least for the next three months, is dead money. Now, if you'll notice, I didn't say twelve months, because I firmly believe that Intel will not just trade on its financial performance, but it will probably trade on news-flow. Even with a flat guide, it is likely that if Intel were to win, say, a Nexus tablet or the cellular baseband socket (and/or apps processor) of a tier-1 smartphone, it would get investors to believe that 2015 and beyond will be good and the shares could move meaningfully higher.
Also, if the PC market doesn't collapse as badly as expected [or if Intel does a good job in simply taking the rest of AMD's (AMD) market share], then the estimates given will prove too low. Don't count on this when making your investment decision, although if you understand this and are STILL okay with holding the shares, then you could be in for a pleasant surprise. But again, don't get your hopes too up ... I have fallen in the trap of thinking that Intel may be guiding conservatively only to find that they're actually guiding in line with what they believe.
I think Intel will at least hit its goal of 40 million tablets sold in 2014, although investors aren't likely to feel a positive financial impact since Intel is effectively giving away the chips in the form of rebates/NRE. This is a good long-term move to win sockets (and to stay in them going forward), but in the short term, it'll only be good for sentiment.
Intel Is Not An Investment For The Average Investor
Intel should not be viewed as a "safe" and "obviously undervalued" tech play. It is not "obviously undervalued" - it's only undervalued if the PC market doesn't continue to collapse and/or Intel gains very substantial share in mobile devices [i.e. Qualcomm-esque (QCOM)]. What I'm trying to say is that if you're an investor who just thinks this is your typical blue-chip dividend growth play that's undervalued because "the market is stupid", then I highly suggest you try to understand why the stock is in the penalty box before betting against the market. Believe me, the market is far wiser than retail investors give it credit for.
That's not to say that the market won't eventually be "wrong" and that the share price could move up meaningfully; I personally think that over the next couple of years, the shares will trade much higher than they do today. But there's a big opportunity cost risk here (although I do think the risk of actual long-term capital impairment is very low) which means that you could end up being very frustrated for many years (I've owned Intel shares since 2011).
No Dividend Increase Likely In 2014
I am completely puzzled that many expected Intel to raise its dividend. Intel's earnings for 2013 were down significantly over those in 2012, and in 2012 they were down from 2011 levels. Intel can't increase how much money it pays out to investors if it is seeing its earnings flatline or decline, especially since the company is already paying out 50% of free cash flow as a dividend.
Unless Intel has a gangbuster 2014 with multiple beats and raises, don't expect a dividend increase during 2014 - the financials just won't support it. Dividend growth relies on underlying FCF growth, which Intel has signaled isn't happening next year.
As you can probably tell, I'm not the Intel uber-bull that I once was. While I still believe in the company's technology edge and its ability to eventually succeed in this market, the reality is that it's going to be at least another year before sentiment (and the financials) finally turn around. I did not expect this - I had modeled 2013 as the transition year that should set the company up for a nice 2014. It looks like the transition will last another year.
If you're willing to own the shares despite the problems that the company faces, then welcome to the club. If you're not, I don't blame you; not one bit.