According to IHS iSuppli, Intel (INTC) -- currently trading around $28 -- captured 15.6% market share for semiconductors in 2011, an increase of 2.5% from 2010. Its next closest competitor, Samsung, came in at 9.2%. Qualcomm (QCOM) is also catching up to Intel. Qualcomm's semiconductor sales increased 42% in 2011, while Intel's semiconductor sales increased 20.6% for the same period. However, Intel's total revenues of $48.7 billion dwarfed Qualcomm's at $10.2 billion.
Intel commands 80% of the microprocessor market, and as pundits like to point out, Intel's R&D budget ($6.5 billion) is bigger than Advanced Micro Devices' (AMD) market cap of $5.4 billion. Advanced Micro Devices focused for a long time on attempts to beat out Intel in a variety of markets, but apparently realizing it was not large enough to seriously threaten its rival, it recently pulled back.
Like its competitors Apple (AAPL) and Microsoft (MSFT), Intel is preparing for high-resolution "retina" displays on new devices to become the new standard. Microsoft Windows 8, when released, will have a resolution that competes with or will be sharper than Apple's iPad 4. However, while Windows 8 may rely on Intel chips, it will also be compatible with ARM architecture from Intel's competitors. I believe it's good news for Intel that the competition is heating up because there must be processing power to support increased pixel resolution and density.
Qualcomm has an edge on Intel in the mobile market, with 50% of all mobile processors running on its Snapdragon platform. Intel's mobile chip dominance is also being seriously threatened by Apple. For now, Apple's Macs run with Intel inside, but all other devices (iDevices, as the grouping is commonly called) run on Apple-branded chips. With Apple using these chips in about 176 million devices shipped in 2011 according to In-Stat, Intel has cause for alarm: It shipped 181 million mobile chips in 2011, a number that's too close for comfort. Granted, In-Stat is including gaming devices in its stats, so many analysts may disagree with the calculations (generally mobile devices are recognized as tablets and smartphones), but I think that arguing over what classifies as a mobile device is splitting hairs. The march of technology over the past five years alone is showing how things once taken for granted as desk- or wall-bound become mobile-adapted, and if Intel wants to continue its dominance it needs to take the Apple threat seriously indeed.
Intel's alliances with Motorola Mobility (NYSE:MMI) and Lenovo (OTCPK:LNVGF) should help Intel in the mobile device sector. These alliances are developing devices powered by Intel's Atom. Current confirmed projects include a smartphone with Motorola Mobility and a tablet with Lenovo.
I think Intel has a major advantage with vertical integration: it is the last U.S. chipmaker still manufacturing in-house. This allows Intel to be nimble, cost-conscious, and perhaps most importantly keep its technology know-how. I think one thing that cannot be overlooked is Intel's Tick-Tock Model of operations, in which it releases significant innovations in microprocessors in "tock" years and manufacturing advances in "tick" years. In effect, the Tick-Tock Model is forcing Intel's competitors to always play catchup to the big league (i.e., Intel), since Intel built a schedule of obsolescence into competitor's products as well as its own when the model was instituted.
Intel's 2011 revenue was 24% above 2010 revenue at $54 billion, despite the disastrous floods in Thailand that lowered earnings and forecasts for almost all PC players. There have been many calls for market saturation in the PC world, but the fact is although consumers may be holding on to their devices longer, eventually all devices will need to be replaced either through failure or obsolescence. Additionally, growing overseas markets like the BRICs don't yet have the technological know-how to provide for their own technology needs, and will be relying at least in part on established players for quality machines -- which means greater demand on Intel's core competencies. Even when these economies do reach the point where they can compete, there will still be a cachet attached to the big-name brands that Intel supplies. Here again I expect that Apple will be a major rival.
Also, as the proliferation of mobile devices increases and consumers gain confidence in cloud computing, it will be Intel's server processors powering the architecture. No other tech company currently competes with Intel in this market seriously, and although this may change, Intel's size and dedication to change make this unlikely.
Intel's price-to-sales ratio from April 2011 to April 2012 stands at 2.6, compared to a ratio of 0.8 for Advance Micro Devices and 7.1 for Qualcomm. I usually don't rely too heavily on price to sales, especially in the technology sector, but when one stock is far out of variance to its competitors, I hear warning bells. Qualcomm is definitely overvalued using this model.
Intel is also favorably priced by forward price to earnings (forward P/E). Intel has a forward P/E of 10.4, which compares with Apple's forward P/E of 11.8. Qualcomm has a forward P/E of 15.5. I think that this P/E is too optimistic and reflects Qualcomm's overvaluation.
Intel has a price-to-book ratio of 3.0, which is low for its growth potential, though similar to Qualcomm's price to book of 3.9. Compare this to Apple's price to book of 6.1; though lower than its last high in 2007 of 7.7, the 6.1 price to book reflects Apple's current "hotness" factor, despite the fact that the stock is trading around $600 and falls short by many fundamental market measures, excepting growth.
I believe that growth rates for Intel nearing 10% annually over the next several years is a reasonable expectation, especially if Intel's mobile chips perform well and are released on schedule (the current forecast is for the Lenovo K800 to be released next month). Intel is a solid buy for a long position.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.