Seeking Alpha
Long/short equity, deep value, special situations, growth at reasonable price
Profile| Send Message|
( followers)  

To Seeking Alpha readers it is no secret that I am a pretty heavy duty Intel (NASDAQ:INTC) bull.

That has not always been the case. In 2000, just before the "tech wreck," when Intel was trading in the $70s, I literally begged friends and family to sell any and all the Intel shares that they owned. I felt the shares had a fair value of about $14. The Intel valuation, along with Lucent, now Alcatel-Lucent (NYSE:ALU), Cisco (NASDAQ:CSCO), Microsoft (NASDAQ:MSFT) and many other tech companies were so obscenely overpriced that something bad just had to happen. Of course it did, in 2001. The low stock prices for Intel, Lucent, Cisco, and Microsoft over the next 10 years was respectively, $13, $2, $11, and $17. All of these stocks were in the $60-80 range in 2000.

Using the same metrics today I would value Intel at $45, Lucent at $0, Cisco at $28, and Microsoft at $62.

Of these four 1990s super growth stocks, I can only see major upsides to revenue growth for Intel.

These growth opportunities are:

The PC business

The client PC business is the largest business unit and the source of most of the profit for Intel. The business has been in decline for the past two years, but now shows signs of recovery. I'm not here to suggest that the PC business is a high growth business for Intel. It is, however, a slow growth business that is very large and very profitable. While PC sales will grow at single digits for the foreseeable future, the CPU chips are fully capable and will likely shrink in size and cost, making the PC business a large, slow growing business generating even higher margins. The client PC business is $33 billion and we could expect about a 3% annual growth rate.

Data Center

The Data Center Server chip business is dominated by Intel at 95% unit share and 97% dollar share. With that kind of market share, the business will grow with the general growth in data and the need to process and transmit that data. With complete ownership of the Data Center server chip business, I would look for Intel to expand their presence in the total Data Center spend. The data Center business is $11.2 billion and is expected to grow at 10% per year.

Data Center Storage

Data Center storage is estimated at 50,000PB, most of it being in the form of Hard Disc Drives. These HDD will convert to Solid State Drives (SSD). That's a $10 billion market for HDDs, but a $50 billion market for SSD. Intel is the number one supplier of SSDs to the Data Center business.

Data Center SSDs are a current business that is expected to grow 50% for Intel this year.

Client PC Storage

The potential in client PCs for SSDs is 325 million units at $150 each or $49 billion. Client SSDs are a natural extension of Data Center SSDs. Intel is in a unique position to use excess capacity either alone or in an expanded Intel/Micron (NASDAQ:MU) Joint Venture to produce the NAND memory to address the Data Center and client SSD business. The total potential is a $59 billion upside.

Data Center Silicon Photonics

Data Centers are getting clogged with copper cables to the point that they are blocking air conditioning air flow. Communications speed has finally exceeded the capability of copper wire and cables to keep up.

Intel is one of the leaders in silicon photonics and will begin shipping this year. The combination of silicon integrated circuits and light communication will be a multi-billion dollar business.

Mobile

At essentially zero participation in the device mobile chip business, the only direction for Intel is up. Intel is spending billions to gain position in the mobile chip business. One thing I learned early and painfully in my career in NEVER underestimate a determined Intel. Expect to hear later this month at the World Mobility Congress that Intel has finally solved the LTE problem with the XMM 7260. The non-captive (no Samsung and no Apple) mobile chip business is certainly at least the $20 billion that Qualcomm (NASDAQ:QCOM) does. Intel is late in design, but two generations ahead in manufacturing. Qualcomm has a large target on their back. Expect Intel progress in tablets first, with the ability to run both Android and Windows. Smartphone progress will follow.

Foundry

Intel has decided to enter the foundry business on a very selective basis. The customers at this point include Cisco and Altera (NASDAQ:ALTR) and a few very small companies. The foundry business is very overrated at this point since Intel has no intention of doing foundry work for competitors. Somewhere, Intel has a "plan z" that involves foundry for mobile competitors if they find the mobile business too annoying to address.

We can't forget that the Apple foundry "problem" remains unsolved. The logical thing to do is for Apple to move the business from Samsung to Intel.

Security

Intel has been criticized for their purchase of McAfee in 2010. Critics call the deal "money down the drain."

Since the Target security breech debacle, McAfee and new Intel CPU chip security functionality could be the salvation of data security in our interconnected world. The McAfee security suite, LiveSafe, is being shipped pre-installed on PCs sold by many of the PC suppliers. The suite is free for a period of time and then the renewal subscription is $89. Multiplied by almost any percentage of the 325 million PC shipped per year, McAfee promises to become a high multi-billion dollar high margin business for Intel.

Of the four 1990s high growth tech companies mentioned earlier in this article, only Intel has clear, multiple, and major paths to growth. All of the growth potentials for Intel are being actively engaged by the company right now and the total value of the growth involved is several times the present size of Intel. Amazing!

Intel is a buy and 2014 is the year.

Disclosure: I am long INTC, MU. 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.

Source: Intel: Upside Potential