Judging from investor reaction in after-hours trading, Intel's (INTC) 2012 Q1 earnings announcement release was a bit of a disappointment. While exceeding consensus estimates for net income ($0.53 vs. $0.50) and revenue ($12.9B vs. $12.85B), the trend was negative when compared to the 4th quarter 2011 numbers. Investors should exercise some patience and look a bit further into the future and Intel's new tri-gate technology that will be finding its way into a broad array of products ranging from smartphones to servers to ultrabooks.
Despite Intel's being the 800-pound gorilla in the PC microprocessor market with approximately an 80% share, it has virtually no presence in the smartphone and tablet markets, which clearly have been the big growth markets. These markets are currently dominated by ARM Holdings (ARMH) which owns approximately a 95% share in those respective markets. ARM Holdings owns these markets due to its low power consumption designs which it licenses to companies such as Samsung, Qualcomm (QCOM) and other companies. These companies produce the chips that are incorporated into products such as the iPad and iPhone, Galaxy Tablets and smartphones, etc.
Intel has been particularly interested in gaining traction in the smartphone and tablet markets and appears to be on the verge of doing so. The "game changer" for Intel is its new tri-gate architecture which improves on both the power consumption and performance fronts. Its tri-gate technology chip is expected to be available later this month and will likely show up in the new ultrabooks and Apple iMac and MacBook offerings.
Key to Intel's success are some recently entered partnerships with Lenovo and Motorola Mobility (MMI) to have its chips included in a number of smartphone models to be introduced in China. The Atom 1.6 Ghz chip is to be incorporated into Lenovo's new smartphone K800 starting next month, followed by more than 40 other new Lenovo smartphone models this year. The22 nm tri-gate technology chip will be incorporated into the Atom technology in the near future with a 14 nm tri-gate technology Atom planned for release in 2013. Each new product launch should result in a further reduction in power use.
It should come as no surprise that the smartphone launch will be in China. Intel has made China the key focus, last year appointing Sean Maloney to the newly created position of Chairman for Intel China. It is anticipated that China will be the #1 market for global smartphone shipments in 2012 according to IDC.
Intel is also cheap from a valuation perspective over a number of metrics. A select group is presented below:
(Source: Standard & Poor's)
StockpickerUSA.com, our proprietary quantitative trading system, has INTC rated a strong buy at 5 out of a possible 5 stars (as of 4/13/12), with strong scores across fundamental, technical and forecast disciplines.
Disclosure: I am long INTC.