Revisiting My Bullish Thesis On Intel

| About: Intel Corporation (INTC)

Intel (NASDAQ:INTC) is lowering its sales and earnings estimates for the coming quarter. In light of this negative development, I decided to review my bullish stance on the equity. Below, I will offer four compelling reasons for maintaining my bullish outlook on the company and its future prospects.

INTC announced that it is seeing weak sales in the enterprise PC market, in line with what major competitors and vendors such as Hewlett Packard (NYSE:HPQ) and Dell (NASDAQ:DELL) have reported. The lowering in sales and earnings is in response to the upcoming launch of the Windows 8 operating system. Microsoft (NASDAQ:MSFT) is slated to release the latest update to its Windows franchise in late October. I believe it is perfectly reasonable to conclude that orders have been put on hold for the last four months in anticipation of the new operating system. More than likely, that delay will cause a sudden "bump" in orders during the Christmas selling season and the first quarter of next year. The sudden "rush" of orders will provide a nice catalyst for future share appreciation. The datacenter business is performing well and meeting expectations (see link above to press release), which leads me to believe the overall PC market is currently weak. INTC is not losing its competitive edge, so once the PC market picks, up the company will certainly benefit.

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One area where INTC has not been able to compete as yet is in the mobile handset market:

Intel (INTC) is pursuing a guerrilla approach to the smart phone processor market, striking deals with carriers and low-end Android OEMs (often in emerging markets) to grab share from the ARM-based (ARMH) processors that dominate the space. The latest example is a deal with Russian carrier MegaFon, which will use an Intel Medfield processor to offer a private-label phone. Intel has already struck smart phone deals with Motorola, China's Lenovo and ZTE, India's Lava, and French carrier Orange.

With the recent announcements, INTC is making incremental steps to enter the consumer market. Granted, it has a long way to go before leapfrogging ARM Holdings (NASDAQ:ARMH), however, constructive steps have been taken. Going forward, I anticipate INTC will be able to take market share, providing the company a new source of revenue.

The third reason for my bullishness is Apple's (NASDAQ:AAPL) recent lawsuit victory against Samsung (OTC:SSNLF). The latter was found guilty of infringing on some of AAPL's patents, perhaps irreparably damaging their relationship. AAPL depends on SSNLF to manufacture the chips found inside its multitude of products. SSNLF competes directly against AAPL in the lucrative smart phone and tablet market, and AAPL has to be less than overjoyed by having to source key products from its main competitor. As I wrote about in my previous article, INTC has two new foundries, which will be operational next year. INTC traditionally builds and manufactures its own chips, yet it doesn't compete directly against its major customers. I am sure this fact is appealing to AAPL.

The last reason for consideration is yield. INTC is currently yielding roughly 4%, which is far superior to bonds. INTC has managed to raise its dividend significantly in the last five years, and has indicated it plans on doing the same for the foreseeable future. When coupled with its dominant position in the PC market and the difficulty in replicating its business model, INTC should remain a cash flow machine for the next few years at minimum.

In summary, today's announcement of an earnings shortfall is a temporary event at best, and it hasn't changed my bullish position on the company. I believe by this time next year, INTC stock will be significantly higher than it is today. When combined with an above-average yield, INTC offers a compelling low risk, potentially high reward.

Thank you for reading this article. The above is for informational purposes only. I look forward to your comments.

Disclosure: I am long INTC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.