Intel (INTC) has had a mixed year of positive and negative news as the stock has wobbled mostly between $21 and $25. The story of chipmaker has evolved from falling behind in the exuberance mobile market to refocusing on that same market with new CEO Brian Krzanich.
Plans for Improving Profit Margin
The company's earnings throughout the year were fairly uninspiring with flat revenue and diminishing margins. Guidance was also flat, as PC sales are expected to remain miserable for 2014. In fact, weak guidance has been one of the main reasons the stock hasn't elevated much since the Q3 earnings report. Wells Fargo (WFC) analyst David Wong rates the stock as "outperform" with a target between $26 and $30. He believes that gross profit margin could increase much more than its 60 to 62 percent range.
SoFIA to the Rescue
Intel's accelerated development of SoFIA, which is a system-on-chip technology, will combine a processor with RF capabilities. SoFIA will help Intel advance in the entry-level smartphone and tablet market, based on the Atom x86 processor. But SoFIA will actually not be manufactured by Intel and will require another contracted manufacturer. If all goes well SoFIA will disrupt the ARM Ecosystem, although it's actually based on ARM, except with a 64 bit IA. The new SoC will be available in late 2014 and be followed with a 4G/LTE version in 2015.
But Qualcomm (QCOM) has clearly become the leader in mobile chip technology, particularly with its SnapDragon 800 processor. Its contracts with China's top mobile wireless carrier, China Mobile (CHL), will continue to feed the rapidly growing mobile craze with chips for LTE smartphones. Intel, on the other hand, doesn't plan to release more revolutionary chips for mobile devices until the second half of 2014. It has also announced Broxton, a system-on-chip design for smartphones with the intent of increased integration for reconfiguring chips, won't be available until 2015.
Life After XP
Windows XP support will terminate on April 8, 2014, as Microsoft (MSFT) has warned businesses that they must migrate to a modern desktop. Intel will benefit since this planned obsolescence will force many organizations to upgrade their hardware and software to Windows 7 or Windows 8.1. Interestingly, XP still maintains 31 percent of desktop market share, probably because Vista was such a flop in 2006 and the Windows operating systems that followed weren't that amazing. Windows 7 only maintains 47 percent share of the desktop market while Windows 8 only has 6.6 percent market share.
Many XP users may continue to hang on to the operating system, which is nearly 13 years old, while many users may decide to just switch to a tablet with Windows 8. Intel is preparing to serve tablet users with an Atom processor for Windows 8 with 64-bit SKU beginning in the first quarter of 2014.
Intel's Role in Business of the Future
One of Intel's developments that's been going on behind the scenes is "perceptual computing" technology. Sensing your emotions, along with hand and body movements, this new technology will attempt to be intuitive. Not only will it be equipped with voice recognition, it will also recognize individual faces.
This step toward artificial intelligence could revolutionize computing, especially for businesses looking for tighter security. Once devices can detect human emotions and biometric data with cameras, it may help businesses with market research about their customers. Perceptual computing will begin with software then the hardware will grow as the technology evolves.
Was lifted December 6 by a Citi Research report that PC sales are stabilizing with improved corporate demand. Analyst Glen Yeung shifted his rating from neutral to buy as 49 percent of PC sales are from corporate buyers. He set a target price for $28 per share as the stock moved up about 2 percent near $25 on the news. Another upgrade came from Drexel, which moved its target price from $26 to $30.
Even though Intel has forecasted a five percent decline in shipments, those estimates may be adjusted. So the stock has a chance for more upward movement as investors look for clues that PCs will survive. The company will still focus on the growing smartphone and tablet market but the report on stabilized PC sales may also help reduce pressure on the stock.
Intel may be a safe investment for dividend holders and the stock appears to be ready to bust out of its narrow trading range. The advantage to Intel is that it's undervalued and has room to grow as the stock is trading only 13 times earnings. The fact that there are only so many viable players in the hot smartphone and tablet market, which will keep getting hotter in the next year no matter what happens with PCs, means the company will benefit from the continued sales boom.