Atom Processor: New Reason To Be Bullish On Intel

| About: Intel Corporation (INTC)

Product differentiation between competitors has long been a strategy of most businesses. Setting itself apart through product functionality, price, or simply just the 'look and feel' is a trend that usually proves effective. Strategy differs when companies reach a certain size. Some companies are big enough to diversify their own products so as to 'hedge their bets', so to speak.

Take for example Microsoft (NASDAQ:MSFT). This company seems to be waiting to see which operating system consumers will grab hold of by rolling out tablet devices with either the Windows 8 or Windows RT.

Alternatively, some companies show such confidence in their products as to bet the farm on a solid performer. This seems to be the case with Intel (NASDAQ:INTC), which is looking squarely at its new Atom processor used in several cross-market devices.

The key to this processor is its universality. It can be used in both desktop devices and tablets without sacrificing performance. As many traditional PC users are slow in migrating from desktop to tablet, it would seem this bet could pay off.

Whenever anyone mentions the word "tablet" in conversation, that conversation will probably include praise for Apple's (NASDAQ:AAPL) iPad. Since its inception, the domination of the tablet market has been largely based on the hitherto unmatched combination of cost-effectiveness and high functionality.

It is mindboggling how the iPad can continue almost unrivaled, save a few attempts at imitation rather than improvement. Apple continues to set the standard in weight, size and dimension, functionality, and 'necessary' features. Stepping out from behind Apple's shadow is tough, but there are several ready for the challenge.

Tablet computing is rapidly becoming the consumer method of choice, threatening to all but sink the PC market. It is expected that the sales of tablets will reach 375 million in the next 3 years, a compound annual growth rate of about 46 percent. Consumers have shown their desire for 'anywhere access' and are willing to pay the company that will give it to them.

According to a recent report, there will be over 750 million tablets in use by 2016 and companies are fighting for their slice of that pie. Attempting to battle each other using the aforementioned tactics - price point, increase in features, better wireless capabilities, and even greater voice activated control - anticipating a user's needs and meeting those needs is the name of the game.

So who is playing this game - or better yet, who is playing it well?

The Competition

Last week, Intel formally launched its new Atom processor. Partnering with companies including Dell (NASDAQ:DELL), Hewlett-Packard (NYSE:HPQ), Lenovo, and Samsung, it is now supporting several tablets that are powered by the Atom Z2760 chip and feature the Windows 8 operating system.

The new devices, which are set to hit shelves next month, are tailored for the corporate customer because of its focus on productivity software including Word, Excel, email clients, and wireless connectivity to printers.

While some may wonder why a chip maker is competing with a company diverse as Apple, perhaps some clarification is in order.

Of the previous mentioned figure - 750 million tablets in the next 4 years - let's say that an estimated 60 percent are Apple devices, leaving 40 percent market share for a combination of other tablet makers. But let's say that all of these 40 percent competitors use the best processor chip available; made by Intel. Moreover, let's say PC sales are dwindling yet still prominent in number. The highest selling PC's are a combination of HP and Dell - both of which have partnerships with Microsoft for the operating system and Intel for processors. Now the numbers start moving in favor of Intel.

Looking Ahead

Tablets are becoming work machines. While businesses utilize HP and Dell for workstation needs, it will no doubt continue to use modular devices running on the same OS, namely tablets using Windows and an Atom Processor. From the new models that sport detachable keyboards or a stylus to facilitate content organization and input, devices that carve out a niche in the corporate market will undoubtedly create competition for Apple in the more general tablet space.

It is unlikely that another company will be the creator of a game-changing tablet. Even if Apple's competitors were able to get past the market stranglehold, as well as the hardware and operating system issues, the main fight is against Apple efficiency. That being said, competition can be waged on several levels, as Intel is proving.

Companies cannot possibly manufacture 'in house' all the components necessary for a product such as the tablet and still remain effective in the market. Costs would be too high, and development of technological improvements would be so slow as to make products antiquated upon roll out.

HP and Dell are already looking to update their systems with a slimmer deign and more powerful performance. Microsoft and Google are both looking to respond to the Apple-induced tablet frenzy. These companies will need to outsource to stay competitive, and they must look to the company that is continually improving itself. Intel is that company.


So what does this mean for the savvy investor? Don't just look at what device is selling, look to who is pushing the limits of innovation and to the chips that run the world wide web. Intel has been a stable performer in its last four quarters earnings reports. It has also been above its 50 day moving average since January of this year, and each move below the 50 day moving average has given investors some great buying opportunities. I view Intel in a bullish light and see earnings per share increasing through the next few quarters.

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.