When I checked the Intel (NASDAQ:INTC) headlines on Yahoo! Finance, I saw a piece titled, "Intel Has Become An Embarrassment" on The Street. I was actually stricken by just how the piece actually failed to substantiate its key bearish arguments against Intel. In particular, I take issue with the following remarks:
If anybody wins at wearables it's not going to be Intel, a company with zero brand cachet with consumers and a legacy that will completely expire if Apple ever takes over the chip slot on its Macbooks.
And, of course,
The more Intel loses, the less it can afford to lose.
Now, let me be perfectly upfront and say that I actually agree with the author that "wearables" will mostly turn out to be a fad, and I further agree that Intel has no business actually selling end-devices to users (since, after all, Intel is a chip company), but the other claims... Well, I humbly offer my rebuttal.
No Brand Cachet?
According to the author, Intel has zero brand cachet with consumers. I mean, after all, Intel only has that cutesy "Intel Inside" logo plastered onto about 80% (and growing) of the Windows PCs on the planet. (Ironically enough, the MacBook/iMac line don't have this branding, so Apple's piddly 16 million computers sold per year wouldn't mean much to Intel should Apple try to have a go at it with its own chips). Oh, and the PC market is only a 300-million unit market today.
Sure, you can argue that the PC market is in perpetual decline (I think the traditional PC market is on the decline, but the rise of convertibles and Intel's foray into tablets will, in time, more than offset this), but what you can't argue with is that according to Interbrand (you know, just one of the world's largest brand consultancies), Intel is the 9th most valuable brand in the world.
Yes, folks. Even though Intel blew it and is no longer the world's largest semiconductor company by market capitalization (that'd be Qualcomm (NASDAQ:QCOM)), it still has by far the most powerful brand of any semiconductor company and, as far as technology goes, is only slightly behind Samsung.
Intel Can Afford To Lose On These Hobbies
It's obvious that Intel's executive team collectively blew it when it came to pursuing the mobile market - they underestimated the market and, more importantly, the competition, so I completely agree that the clock is ticking on its mobile strategy. This is doubly true as Intel is not only not seeing a return on its massive ~$4b/year investment in mobile (this is Qualcomm-level, without the Qualcomm revenues), but the PC market (Intel's core business) is in secular decline as far as anybody can tell, so success here is imperative.
I also agree that Intel shouldn't be wasting money on acquisitions of third-rate "wearables" makers like Basis (seriously, go read the Amazon reviews of their products sometime - utterly junk), but $100 million here or there for a company that generates ~$11 billion/year in free cash flow just isn't going to break the bank. If Intel wants to make these acquisitions and potentially learn something about the industries it may want to supply chips into, then why not? All of Intel's failed mobile chips thus far have cost >$100 million each to develop, but the company presumably learned something from those failures.
Does Intel need to pull it together in mobile and start developing leadership products? Of course.
Is the PC market in deep trouble? Depends on your definition of "PC".
Does Intel need to get a pretty significant chunk of the mobile pie in order to offset PC declines? Of course.
But is Intel's brand worthless? Will spending a couple-hundred million to learn about wearables really break the bank? Nope.
Is Intel an embarrassment? Well, do any other chip design houses own their own fabs, generate $50 billion in semiconductor revenue, and have a more valuable brand than Intel?
Disclosure: I am long INTC. 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.