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While we believe shares of Intel (INTC) appear cheap at 10x FY12 EPS, significant secular headwinds are concerning, and we believe risk is weighted toward the downside in quarters ahead.

Specifically, we expect ARM (ARMH) to increasingly encroach upon Intel's core notebook and server markets. We received a reminder of this point today when news emerged that Hewlett-Packard (HPQ), the world's largest server manufacturer, will be shipping ARM-based server samples to clients in 2Q. That HP and others are evaluating ARM is not news, but the actual sampling to clients is somewhat earlier than we anticipated, and will be an ongoing worry for folks in the Intel camp.

Despite its massive manufacturing footprint andR&D capabilities, Intel appears to face challenging times, and, in our view, has a shrinking moat around its business.

Intel has been ill-prepared for the post-PC world the shift to mobile -- smartphones and tablets which will increasingly cannibalize desktop and notebook.

Moreover, the emergence of ARM, who has been the dominant supplier to Apple for its iPhones and iPads due to its highly efficient, low power processors, is likely to be an ever growing concern. ARM is not just an Apple story, and has taken massive share in the smartphone market, and expects 50% share in the entire mobile market by 2015 (including notebooks), up from 10% just a year ago. Clearly, if ARM is anywhere close to achieving its goals, Intel will be challenged to grow.

A stronghold for Intel has been its dominant position in the server space, which continues to grow at double-digit rates. While ARM may take share slowly, its ongoing appearance in the headlines is likely to hamper any multiple expansion from Intel. And should ARM actually surprise in gaining share at a faster clip, Intel could see results for 2013 and beyond at significant risk.

Given Intel's abundant resources, it is difficult to believe they won't aggressively attack the ARM challenge, but it may be years, and many points of market share loss before they succeed.

For investors looking for value in big-cap tech, we continue to prefer stocks such as Apple (AAPL) at 9x FY12 (ex-cash) and still taking share or Sandisk (SNDK) at 6x FY12 (ex-cash) with NAND price declines slowing and SSD adoption at the cusp of a dramatic growth phase.

Source: ARM Strength Threatens Intel

Additional disclosure: We conduct thorough research on our ideas, but our views are our own. Please do your own research.