Intel (NASDAQ:INTC) is going to get inside the world's pocket book and fill our pocket books through Intel LEAPS (see below) through innovation and providing the platform and tentacles for the Internet of Things ((IOT)). Intel is uniquely qualified and positioned to provide value to the IoT transformation and reap huge profits - more than it did providing processors to personal computers.
I like to think of IoT as the Internet of Everything - pretty much everything will have a digital footprint and be able to be monitored by electronic processors. This will include electronics in many things, communication with things, local processing of the data from things, data center storing/processing of data from things, communication with data centers, processors to apply the data to practical everyday needs. Intel has innovation ready to launch that will penetrate all of these areas with more innovative technology to follow. Intel is also the lead in defining standards for this communication. I like to think of Intel as providing the platform for the IoT as well as the tentacles connecting all the things.
A game changer will be the Intel 14 nm processor. Broadwell is Intel's codename for the 14 nanometer die shrink of its Haswell microarchitecture currently being delivered to manufacturers and due in stores before Christmas 2014. This shrink will provide a processor that is significantly faster, smaller, and more energy efficient than any other processor. Other chip manufactures are about a year behind Intel. The gap will likely widen in the future due to the complexity of this achievement and the follow on improvements Intel has in the works. Intel likes to talk about how this 14nm processor combined with it Solid State Drives (SSDs) will allow the first high powered laptop PC without a fan. A fanless laptop!
After putting the 14 nm processor in fanless laptops Intel will put thousands of 14nm chips INSIDE the next generation of supercomputers used to process Big Data. Millions of 14nm processors will be INSIDE the next generation of PCs. The 14nm chip will allow more memory (possibly phase change memory) to be integrated right into the processor chip. This will essentially allow the power of an Intel processor INSIDE your pocket in a very smartphone (VSP :-) ).
An overriding strategy of Intel is not to sell the end products as much as to be INSIDE most of the electronic products that are sold. The world of assembling PCs, tablets, phones, etc. is a relatively low profit margin industry. Intel enjoys a much higher profit margin by providing the most central and complex piece of each PC, tablet, phone, etc. Intel enjoys a profit margin of ~60% using this strategy!
Intel's dominance in PCs is well known. While Intel is late to the phone and tablet market, their presence is growing with 40 million Intel CPUs INSIDE tablets this year. They are first providing a solid product at a lower price along with technical assistance so low cost tablet makers can put Intel INSIDE. Then Intel will introduce their low cost next generation phone processor and the high end 14nm processor with integrated memory right on the processor chip . . . and blow away the competition.
Memory in Processor Chip
Russ has written about DRAM on processor chip. Russ introduced many of us to the profitable world of Micron options. He stated in 2013 that if you only bought one stock in 2013 make it Micron. Now Russ describes Intel as the investment of a lifetime! As I understand Russ, he supports his position with: 1) Intel's unique innovative ability and market position and 2) Intel's huge fabrication facilities with no announced use.
Intel's long-term plan is to integrate HMC directly into their fab process and completely bypass the need for a discrete memory product. Phase change memory, unlike flash, is completely compatible with chip fabs. So you can integrate nonvolatile memory right onto the chip if you use PCM.
Intel is the wild card here. Integrated processor and memory will destroy every one of their competitors because it will be an order of magnitude better in both performance and power efficiency. For reference, Intel's "phase change memory and switch" that they announced in 2009 can store nearly 16 gigabytes in a square centimeter with one bit per cell in a single layer (at 14nm). If they go 4 layers with 2 bits per cell, then you have 128 gigabytes.
The PC isn't dead. Intel's just going to let you put it in your pocket."
Intel anticipates earnings per share for this year of $2.28.
Moving from the 8-1-14 Intel price of $33.75 to $60 involves the following possible scenario: Earnings per share increase to $4 and PE increases to 25. Oops - while that is likely, that would get Intel stock to $100! A more reasonable and very likely scenario: $3 EPS and PE of 20 would result in Intel at $60. Increasing the earnings is a function of selling more at high profits. Increasing the PE ratio is a function of increasing the "shine" of Intel - more bling.
Intel profits during the next year will build on the PC while eliminating losses in mobile. Then the 14nm avalanche will kick in full steam. These two steps will increase earnings and the Intel bling.
Intel has clearly stated its confidence that the Intel stock price will be increasing over the next several years by increasing its stock buyback program by $20 billion with $4 billion intended for stock buyback this quarter!
Market Maker Influence
In a recent article Russ hypothesized that large investors are accumulating shares of Intel stock at relatively low prices. Apparently institutions go to the "market makers" (professional traders) to anonymously accumulate stock for a big purchase. Without this type of anonymous accumulation, the stock price would go up significantly when traders learn that a large buyer is buying. The big buyer agrees to buy so much stock for a set amount. The MM then goes out and does his thing to quietly accumulate the stock at a lower price. Big buyer gets his stock at a good price and the MM earns a profit if he does his job well.
To understand this better I use a football analogy. The big buyer is like the manager - he says "I want to win this game." The manager goes to the coach and says figure out how to win this game. The coach is like a market maker. The coach goes to the team and says here's what we are going to do to win this game. The quarterback and team do all kinds of strategies to fake out the other side and quietly move the ball down the field. They might do a QB sneak - quietly accumulate stock without the rest of the market realizing what's going on. The QB might do a fake pass to one side and then run to the other side. The MM might sell short to get the market to lower the price and then quietly buy the lower priced shares.
The end result is what I care about. Market maker activities to accumulate stock for large buyers tends to hold the stock level even if there is news that would drive the stock down or even if there is a growing demand for the stock and upward price pressure. We have certainly seen this type of action recently with Intel. Intel pricing was pretty consistent during the last half of July. If big buyers are accumulating Intel stock, eventually they will need to (and want to) disclose this accumulation. The end result is a time of flat pricing followed by rapid increases, then followed by profit taking. A bumpy road upward. I enjoy a good rough and challenging jeep ride up a mountain - I also enjoy riding bumpy LEAPS up to huge tax free profits.
LEAPS for Fun and Profit
First please remember that investing in options can bring huge returns and can result in losing everything you invested in options. As an example, during this last year my initial investment of $100k in a Roth IRA using options first dropped to $69k then climbed to $250k, then climbed to $400k before dropping to $105k before eventually climbing to $630k. If not for Russ Fischer, Seeking Alpha contributor, providing information about Micron (NASDAQ:MU), I probably would have lost my initial $100k and not be writing this article. Thank you Russ!
Russ is retired from the semiconductor business, does deep investment research and shares this information with friends and relatives. My purpose in writing Seeking Alpha articles is solely to share my investment research, insights and ideas with friends and family.
Long-Term Equity Anticipation Securities (LEAPS) are the safest way to invest in options. From Investopedia LEAPS are: "Publicly traded options contracts with expiration dates that are longer than one year. Structurally, LEAPS are no different than short-term options, but the later expiration dates offer the opportunity for long-term investors to gain exposure to prolonged price changes without needing to use a combination of shorter-term option contracts. The premiums for LEAPs are higher than for standard options in the same stock because the increased expiration date gives the underlying asset more time to make a substantial move and for the investor to make a healthy profit."
An example of an Intel LEAPS is: "INTC JAN 15 2016 40.00 CALL"This is an option to buy Intel stock at $40 in January 2016 - even though the price may be $60 in January 2016. Would you pay $1.50 (8-1-14 price for this option) to buy Intel stock in 18 months if you knew the stock was going to sell for $60 in 18 months? Absolutely! How can you know that Intel will be selling for $60 in January 2016? Read on. By the way, the $1.50 you invest now could become $0 (if Intel does not get above $40) or if Intel stock does reach $60 your $1.50 LEAPS investment would become $20 or 13 times your initial investment - a 13-bagger! One more thing about Intel options: you can sell them any time you choose - no need to wait for January 2016.
I look forward to the day that I can carry around a small very smart phone in my pocket that can itself process all of the information that I choose to consider around me from the Internet of Things . . . with insights from analysis of Big Data. Then I can step up to a keyboard and large monitor to use the full power of my Intel processor/memory. The combined Intel processor and memory chip would run for days without charging and stay cool INSIDE my pocket . . . even while using a keyboard and large monitor . . . as I travel the world spending my profits from Intel LEAPS for Fun and Profit . . . tax free in a Roth IRA.
Disclosure: The author is long INTC. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: The article has an emphasis on fundamentals with information on how to use options to make the most of the fundamentals. Options, even LEAPS, are risky and should only be used by experienced investors that understand the potential risks and benefits.