If you are among the multitude who are crying that the sky is falling for Intel (INTC), you are probably making your assertion based on popular misconceptions. Whether you agree with me or not, Intel is set to rise in the coming quarters and fiscal years unless it experiences something catastrophic. My argument in support of this motion stands on the solid ground of some facts about Intel that have been ignored by the pessimists.
With me, in support of the argument that Intel will rise is an article by Bret Jensen titled "They Don't Get Intel". Jensen has done a great job in listing some of the great points that have been ignored by most analysts, which could see Intel Rising in the coming years. Here are a few of Jensen's points, which I will follow up with discussion:
- Data center sales have doubled over the last decade and now account for 20% of Intel's total revenue.
- PC revenues are still expected to grow in the single digits in 2012, powered by sales to emerging markets like Brazil and China.
- Intel's mobile business is expected to grow 37% to $5.5B in FY2013 as smartphone sales start to kick in.
- With Fabrication plants "Fabs" costing upwards of $5B apiece, Intel is one of the few companies with the expertise and financial strength to be in vanguard of new chip production."
I want to strengthen the argument in support of the motion that Intel will rise with some other observations. One of these observations relates to a recent piece of news that saw Intel investing in excesses of $40 million over the course of the next five years to build a strong and unprecedented network that includes research communities across universities globally. The program is officially titled as the Intel Collaborative Research Institutes (ICRI) and it is focused on bringing experts from both the academics and technology industry together in a collaborative effort to pioneer the technology for the future.
The highlight of the program includes the fact that it has a three-pronged approach that is directed at Sustainable Connected Cities, Secure Computing and Computational Intelligence, which are located in the United Kingdom, Germany and Israel respectively. Without any doubt, it is glaring that Intel understands that the dynamics of computer technology are on their way to a massive change. Thus, it is taking proactive steps to position itself as a global force that will be a strong part of the change while providing great value to both investors and consumers alike.
Interestingly, that is not the end of the proactive news, because another development holds that Intel is also set to venture to the mobile technology industry and tap into colossal potential that is being offered by mobile internet use. You will remember that Intel had hitherto been a manufacturer of high-powered, high-speed chips, which did a very good job with PCs. However, it is no longer news that the PC business is dying and it is being replaced by the onslaught of mobile devices such as smartphones and tablets. Yet, it is hard for manufacturers to adapt the high-powered Intel chips to smartphones and tablets (which are designed to run primarily on the low power of batteries). This was probably the reason behind the dominance of ARM Holdings (ARMH) as the provider of the chips used in mobile devices.
Nonetheless, investors will delight in knowing that Intel has plans to challenge ARM's dominance in the industry with its plan to release a new Atom line of low-powered chips. The chips are expected to start making an appearance in smartphones in the United States, United Kingdom, France, China and India. According to Todd Lowenstein of HighMark Capital Management "Intel will be a formidable competitor in the smartphone and tablet markets shortly with new design wins and alliances,"
However, the news about Intel entering the market that produces chips for smartphones and tablets will in doubt be bad news for Qualcomm (QCOM) and its investors. This is because Qualcomm recently announced it would not be able to keep up with the demand for its chips that were being used in smartphones due to some unforeseen circumstances. Given the dynamics of the market during such a period, the manufacturers of smartphones such as Google (GOOG), AT& T (T), and Sprint Nextel (S) will need to prepare for an increase in price of the chips because the demand is more than the present supply. They may be looking Intel's way soon enough.
Assuming that the market condition continued without the intervention of Intel, Qualcomm would have had a great opportunity to make more money and rise with the trend. Yet, given the prevailing market conditions, Qualcomm may end up losing its share to the market if it does not make a fast move because manufacturers would have made a complete switch to Intel's Atom chips before Qualcomm gets its act together. With Google soon to unleash the hoopla around its new tablet, I'm sure it would appreciate having a solid and reliable microchip running its system. If the Atom chips are all they're cracked up to be, it may be the best choice on the market.
Popular opinion seems to be down on Intel. It's easy to understand why, but few people, perhaps, are seeing the upside of the company. The fortune of Intel may be on decline because of the purported death of the PC, but you may want to rethink your stand altogether on it. Smart investors should be anticipating market trends, and there's a lot of possibility on the horizon at Intel. The question will be if the company and its products can keep up with the promise.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.