Intel: Sales Stagnant - Hold Off On Buying

| About: Intel Corporation (INTC)

Intel (NASDAQ:INTC) is a technology company that designs, manufactures, and markets semiconductors. Intel's headquarters is in Santa Clara, California. The company has a market cap of $115.8 billion and a stock price of around $23.

Intel is currently in a downward spiral. Since May 3rd when the stock hit its 52 week high of $29.27 the stock price has decreased by 26%. In the second quarter, its year-over-year net income decreased by $150 million. The reason that Intel's stock and net income are on the decline is because its core business, selling processors for personal computers (PC's) is stagnant. Intel along with most other companies that are heavily involved in the PC business, are having problems maintaining their stock prices and their revenue flows. Over the last six months, Dell (NASDAQ:DELL) stock price has decreased by 16%, Hewlett Packard's (NYSE:HPQ) stock price is down by 16%, Advanced Micro Devices (NYSE:AMD) stock price is down by 61% and Texas Instruments (NYSE:TXN) stock price is down by 3%. These companies like Intel, suffer from what some analysts consider to be an outdated business model.

While there is still demand for PCs, it is now clear that mobile communication devices is the growth area of the computer market. Companies which are involved in the design and marketing of smartphones and tablet computers are the new leaders in the technology sector. For example, Apple (NASDAQ:AAPL) has a market cap of $655 billion and its stock price is up by 19% over the last three months. Google (NASDAQ:GOOG) which designed the Android mobile operating system has a market cap of $238 billion and has seen its stock price increase by 25% over the last three months.

Intel has attempted to solve its problem by producing upgrades to its product line, but none of the upgrades have been gamechangers. The company had high hopes for a line of laptop computers which it calls Ultrabooks. But, sales of Ultrabooks have not met expectations and accounted for only 5% of laptop sales in the second quarter of 2012. The sales of the Ultrabook computers have been poor due to the success of tablet computers, and because some potential buyers have been waiting for the release of Windows 8 devices. But, the biggest reason for the Ultrabook's lack of success is its high price. Most Ultrabooks have a sales price of around $1,000.

Another new Intel product is codenamed Haswell. Haswell is a mobile chip which will be used in tablet computers and Ultrabooks in 2013. The problem with Haswell chips is that they have gotten poor reviews and analyst are already calling them a "has been product".

A third product line that Intel has high hopes for is its ATOM chips. Intel hopes that its ATOM chips will be the product that will make it a major player in the mobile device market. The ATOM chips will be used in tablet computers and mobile phones. Intel's ATOM Medfield chips (which have not been a marketing success) will be used in Linux and Google's Android operating systems, and its newer ATOM Clover Trail chips, would be used only with the Microsoft (NASDAQ:MSFT) Windows 8 operating system.

Recent News about Intel

On September 20th Intel announced that it is working on a foundry partnership with Cisco System (NASDAQ:CSCO). The partnership would call for Intel to manufacture Cisco's custom processors. Piper reports that the deal could "represent a $1B/year opportunity." Intel entered the foundry market earlier in the year.

On September 18th Motorola Mobility unveils the Droid RAZR i: its first phone to feature an Intel (INTC) Atom processor - a 2 GHz., single-core part. The Droid RAZR I "bears a strong resemblance to the Qualcomm (NASDAQ:QCOM)-based Droid M".

In the last week, Intel received downgrades from two different analysts. Both analysts cited reduced PC demand as a reason for the downgrades.

On September 18th RBC's Doug Freedman downgraded Intel "citing inventory issues, poor PC and telecom equipment demand, and a softening Chinese market. "The current cycle is unique in that semis have contracted three quarters only to exhibit one-quarter of recovery," says Freedman."

On September 13th Citigroup analyst Glen Yeung downgraded Intel. Mr Yeung noted that "the intermediate term prospects for PC's do not look optimistic. Robbed of catalysts, we see limited likelihood PC-related shares will appreciate meaningfully in coming months, despite valuations." These downgrades were not specifically aimed at Intel but rather at PC stocks in general.

Conclusion

In light of recent developments, Intel's near term future does not look good. The company's core PC business is no longer growing, and its attempts to enter into the mobile (cloud) computing business have not been successful. The company has high hopes for the success of its ATOM mobile communication chips, but there are no guarantees. Intel has had limited success in the mobile communications market, and its ATOM chip faces strong competition from chip makers such as Qualcomm, Nvidia (NASDAQ:NVDA), and Texas Instruments. Investors have taken note of Intel's deficiencies and have punished its share price.

Intel's share prices are down by 13% over the last month and are negative for the year. Despite Intel's downward spiral, I would not give up on the stock. The company is still highly profitable, reasonably valued (PE ratio 9.8) and has a solid 3.9% dividend yield. I would not rate Intel as a buy at this time, but would reconsider once it seems clear that the stock has bottomed out.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.