Taking my rose colored glasses off
I have been an Intel (NASDAQ:INTC) bull for years. I really want to see the company succeed. Yet, I postulate this has blinded me to the company's prospects for growth going forward. This is a problem that besets many investors. Many times investors fall in love with stocks. They feel as if they actually are a part of the company in a way. This couldn't be further from the truth. I have let my love for Intel cloud my judgment regarding the stock's performance over the years.
Intel has been dead money for years
Intel has been dead money for years, over a decade to be more concise.
(Chart provided by Scottrade.com)
There were numerous analysts along the way that touted the merits of the company. Many have called for the stock to double several times over the past decade, but it has never come to fruition. If you are an income investor, it hasn't been that bad. Nevertheless, with rates on the rise, the current 3.62% yield may not be as appetizing as in the past. Currently, there are still many pundits prophesying Intel will return to growth mode and we all better grab some shares now and hold on tight. Well, I have heard it all a thousand times before. I'm not buying.
Intel completely missed the boat on mobile
Intel missed the boat on mobile and everything else over the past decade for that matter. Secondly, even if Intel was able to land a contract with Apple (NASDAQ:AAPL) to supply chips for mobile phones, the profit margins will most likely be very tight. If Intel does land the contract to supply chips for Apple's iPhone line, I suspect the concessions Intel will have to make will drive profitability far down the road. Apple is known for being an extremely shrewd negotiator when it comes to vendors. To be completely honest, I don't think Intel will ever be major player in the mobile market. The opportunity has past at the point in my book.
Intel's declining PC revenue may challenge growth
Intel's PC Client Group recorded revenue of $33.0 billion in 2013. This was down 4 percent from 2012. Intel's Data Center Group revenue was $11.2 billion in 2013, up 7 percent year over year. Other Intel architecture operating segments revenue of $4.1 billion in 2013 was down 7 percent from 2012. The problem is the PC group revenue makes up approximately 60% of total revenues. With that segment slipping 4 percent per year, Intel will need to almost completely reinvent itself just to break even. Further, the decline in PC sales is amplified when you look at the company's net income and earnings per share data. They were both down year-over-year 13% and 11%, respectively. See chart below.
(Table provided by Intel.com)
The brighter side
If Intel can successfully break in to the mobile market, the company may get back on track. Even so, what is more important will be the stabilization of the PC segment. This must happen or all bets are off. If Intel can achieve these two objectives the company could return to growth.
Intel is a great company with a lot of positives going forward. The elephant in the room is the declining PC business. Even if Intel executes perfectly on mobile and all other segments, the decline in the PC segment will offset those gains. The company must halt the decline in PCs and execute perfectly regarding all other segments to be successful. This seems like an extremely hard row to hoe. I say the risk far outweighs the reward at this point. I'm on the sidelines for now.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.