I have a soft spot in my heart for Intel (INTC).
Intel is the definitive company of my generation, more so than Apple or Microsoft. Intel chips have powered the whole PC revolution, and their price-performance improvement, in line with Moore's Law has been the metronome of our age. I have 600 shares, wouldn't part with them for the world.
But Intel has a natural weakness, and a natural pattern in its trade. It often leads a recovery, when demand for new technology is rising. But because it first designs chips, then sells them, it often falls astern of rivals that, lacking their own fabrication plants, first sell designs and then make them.
So it is again. Intel is up 44% over the last year, but since the start of this year it has been outpaced by rival Broadcom (BRCM), which has excellent relations with Chinese OEMs because it brings them completed product designs, not just chips-and-software.
Intel's latest guidance is slightly higher than analyst estimates, and its most recent quarter beat the street by two cents/share. Its 21 cent/share dividend, a yield of nearly 3%, will barely dent its cash. It has become the kind of stock, and the kind of company, an investor can buy at the bottom of any trough and hold with confidence.
But it's most likely to trail its rivals again as the recovery gains steam. The company is depending heavily on Ultrabook PCs for growth, and has been outflanked by ARM Holdings (ARMH) and Qualcomm (QCOM) in the fast-growing segment of Android phones and tablets.
Worse, Intel is getting into one of its consumer moods again, and its engineers seldom succeed when they go this far out of their comfort zone. The latest idea is a sort of Internet cable box, which would deliver a selection of channels as Internet streams. What seems like a great consumer idea at first always seems to miss on execution, because Intel is not now, and likely will never be, a consumer company.
That said, potential losses from these diversions are unlikely to be material. You can get better returns over the next quarters with the fabless companies, but Intel will still define the future, and long-term investors should not miss the gains they don't get. Buy Intel on weakness, Qualcomm or Broadcom on strength.
Disclosure: I am long INTC.
