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Intel Corporation (INTC) is the world's largest semi conductor company in terms of revenue. It designs, manufactures and sells integrated digital technology platforms worldwide. Intel was the first developer of the commercially viable microprocessor. It operates in four segments: PC Client Group, Data Centre Group, Architecture and Software & Services Group. Some of its popular brands include Pentium and Core processors for PCs, Xeon for servers and Atom for notebooks. I believe that Intel is one the few technology stocks which provide both growth and value proposition. I expect the growth will come from strong product pipeline and opportunities in Cloud Computing.

Intel- The Growth Story

Intel has an 80% market share in the PC Industry and it derives 66% of its revenues from this segment. One of the concerns which bother most of the investors is - Can Intel still grow its revenues despite of maturing PC market? I think yes.

The next big growth opportunity lies in Cloud computing and PC segment's loss will be Data Center's gain. Cloud computing is a critical IT trend taking focus away from PCs to data centers where all computing power and data is housed. Not only is this a high growth opportunity, it is also a high margin business. And despite of the fact that it is still an emerging technology, the adoption rates are rapidly increasing.

One of the key data points helpful in forecasting near term data center spending is the capex guidance from big data center spenders like Apple (AAPL), Google (GOOG), Yahoo (YHOO) & Facebook (FB). Higher spending guidance from these companies indicates higher data center capex growth in 2012 and I believe Intel is in a competitive position in this high demand environment. Along with the current offering - - Sandy Bridge EP -- which is already doing well, Intel is expected to launch Ivy Bridge EX, a high end processor for the servers by mid 2012.

In addition to opportunities in cloud computing, Intel also has a strong product development pipeline. It is constantly developing new microprocessors which are focused on performance and increased capabilities. One such product to watch out for in the future would be TriGate transistors for 3D chipsets. This robust product development seems to be supported by its higher capital expenditure guidance for 2012. While higher capex is seen as a negative mostly due to downside risk to gross margins, it can also be a long term positive as Intel attempts to further distance itself from its peers and build entry barriers at the same time penetrating newer markets.

More growth drivers for Intel include gaining traction in smartphones. Intel announced at the recent World Mobile Congress that it is partnering with Orange, ZTE and Lava who will be adopting Intel's Atom processors for their smartphone launches. This is in addition to the existing relationships with Lenovo, Motorola (MMI) and Google (GOOG). Smartphone is one area where Intel lags behind ARM Holdings (ARMH). However, it is impressive that Intel is expanding its global footprint in smartphones. This may not translate much into revenue growth in the near term, but with its 14 mm and 22 mm offerings in the future Intel could become a serious contender in this space.

Intel - A Value stock

Intel's management has been committed to returning the money to the shareholders in the form of dividends and buybacks. Its current dividend yield stands at 3.1% - - highest amongst its peers. Further, Intel repurchased $14 billion in shares in 2011. Intel is currently trading at 10.26x its expected 2012 earnings. This P/E multiple is lesser than its historical median of 15x. From the table below it clearly appears undervalued relative to its peers.

Company

Ticker

Forward P/E

Advanced Micro Devices, Inc.

AMD

8.96

NVIDIA Corp.

NVDA

16.47

Texas Instruments Inc.

TXN

13.56

Micron Technology Inc.

MU

18.19

Even with a maturing PC market, Intel has solid growth opportunities in servers, driven by emerging cloud technology and related applications. Further, Intel continues to invest in its product pipeline which will differentiate it from its competitors in terms of product offerings. Given its attractive valuation & Good growth opportunities, I believe it is a good GARP stock.

Source: Intel: An Ideal GARP Stock