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Summary

  • PC processor sales to businesses are increasing and are Intel's biggest revenue source.
  • Hand-me-down processors keep margins high.
  • Innovative new processors will result in high stock prices.

This article is a fairly basic primer on Intel (NASDAQ:INTC) stock written mostly for those new to Intel. I don't use a lot of technical jargon and most of the article is not new information. Now that I have set the expectations low let's jump in.

Intel divides revenue into three groups:

  • Data Center Group 22%
  • PC Group 70%
  • Other 8%

Let's start with the Data Center Group. This is where the exciting news is generated. For example, the next generation of Intel's Xeon Phi processor is planned for Intel's "Knights Landing." This processor includes the company's modern Silvermont cores stacked using Hybrid Memory Cube (HMC) technology with up to 16GB of on-package memory also in HMC format. Having these stacked processors and memory on the same package dramatically increases speed, reduces energy use, reduces heat generation and is much smaller.

The National Energy Research Scientific Computing Center has already signed up to power their forthcoming Cori supercomputer with 9,300 Knights Landing nodes! Intel currently enjoys being the CPU supplier for the bulk of the 500 top ranked supercomputers.

Russ Fischer has made the case that Intel will likely be the first to combine processor and memory in the same chip - referred to as the "Holy Grail" of computing. First step is on-package ... then processor and memory in the same chip. This huge step would revolutionize computing and tremendously accelerate the Internet of Everything.

Exciting stuff! Intel appears uniquely positioned to develop and implement such a revolutionary chip.

Russ points out that Intel continues to build huge new fabrication facilities with no announced use. It does seem that Intel has some new technology up its sleeve that will make use of these new fabrication facilities.

Now for the PC group - the big money maker for Intel. Processors developed for supercomputers are refined for use in PCs which dramatically reduce the development cost and allows Intel to maintain its 60% profit margin. This process is akin to the hand-me-down clothes that go from the older sibling to the younger ... except that the PC processors are shinning new products - it's just that the same technology was used in supercomputers a "generation" ago.

Processor sales for business PCs are increasing for many reasons:

  1. During the recession and recovery, PC replacements in businesses were deferred.
  2. The business PCs purchased 5+ years ago are now dinosaurs and employees are making the case for improvement in productivity with new PCs.
  3. PCs running the old Windows XP need to be replaced to reduce the risk of compromise.
  4. Business owners and managers are now seeing the benefits of replacing dinosaur PCs with new and faster PCs ... and they have the funds to buy them.

This recent increase in demand for business PCs has increased Intel's earnings and will continue to stoke earnings growth over the next year or more. Stay tuned for the July 15 Intel earnings report in which Intel has said it will be raising its guidance for the year.

I see Intel stock price doubling over the next year. I am buying a big position in Jan 2016 $40 strikes.

Source: Intel: Basic Reasons For Increasing Earnings