Can Intel Be Born Again Or Is It Late To The Party?

| About: Intel Corporation (INTC)
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Intel Corporation (NASDAQ: INTC) has been the stalwart global producer for semiconductor chips for decades. In that time period, the company has been responsible for technology breakthroughs that have allowed computer equipment to run faster and with smaller physical sizes. As a result, Intel has seen market expansion in computing, communications, government markets, network support, hardware design and fabrication, and intermediate manufacturing of product other business sell at the retail level. The Intel product line includes motherboards, microprocessors, semiconductor chipsets, connectivity equipment, and supporting operational equipment. Almost all of Intel's products are sold to other businesses who then sell them to commercial or consumer clients.

Fundamental Analysis

In the past five years, Intel has been in a cycle of slow growth. However, it has still grown, which is notable given the size of the company and where its market has been in technology. That growth of 6.8 percent in gross revenues also translates to a 12.6 percent growth in earnings per share over the same five years. Also keep in mind, this growth occurred during a nationwide recession that started in 2008. When one looks at the P/E Ratio Intel at 12.45 when the industry is sitting at an average of 17.6, Intel looks highly undervalued versus what it can promise if its new strategies work.

Current Strategy Shift - Going Mobile

Brian Krzanich is now Intel's latest CEO, replacing the outgoing Paul Otellini. With CEO changes come strategy changes, even small ones, and Intel is now being led by a 31-year insider who knows the company but not all of its markets. Mobile is one of those weak areas.

At the same time, Intel is realizing its market dominance is eroding as technology demands are shifting from the deskplace to the mobile environment for major demand. There will be plenty of desk computers still needed for the time being, but the basic desk computer is pretty much a commodity now versus a unique product. Thus its price points have dropped considerably as well as profit made from desktop chipsets. In the meantime, the big profit wave is in mobile technology and platforms.

Realizing the demand shift a bit late, Intel is now putting effort and focus on the mobile technology market, throwing its weight in to advancing designs of mobile tech chipsets and related equipment. As the new CEO put it, "Yes, we missed it, we were slow to tablets and some of the mobile computing. We do believe we have a good base." This effort assumes that the PC desktop market will continue to decline over time, and inroads into mobile will make up for the revenue loss with new profit streams in smart devices and tablets.

The Tools to Move Ahead

Not surprisingly, Intel's new strategy direction for mobile comes with a new chip venture as well. Haswell chips are being touted as the flagship for the new mobile market forays, being put out now in the 2013 second quarter for production use. The Haswell chipset already rates at a higher performance level for graphics and mobile battery consumption, so it has two big selling points for manufacturers of phones and tablets. That fact has put competitor Advanced Micro Devices, Inc. (NYSE: AMD) on notice. Intel has already moved quickly to regain lost ground. In the Windows operating system tablet market share, Intel now commands 90 percent of the demand. However, this is not a monopoly; the Windows tablets only represent 7.5 percent of the total tablet market, competing against Google's (NASDAQ: GOOG) Android and iOS from Apple (NASDAQ: AAPL).

Further, anticipating that with more consumer participation, smart devices and smaller computers will come down in price, Intel is aiming at the notebook market with faster, cheaper chipsets to dominate the mobile computing set who need more than a tablet to do business. The Baytrail chipset processors are expected to be the 800-pound gorilla that will control this market for the company.

A Bright Future on the Horizon?

Much of Intel's beaten down stock value is currently attributed to the declining desktop and PC markets. Again, what's left is commoditized, driving pricing to bottom barrel levels since there are so many substitutes available now for a basic desk computer. Intel's flag has been tied to this market for years, so as everyone watches the market decline Intel's stock goes down in sentiment as well.

The above said, if the Haswell and Baytrail projects show good success early on, then the company should start showing revenue gains with market increase and order demand for chipsets. That in turn should start to boost INTC's valuation in an upward direction, especially in 2013-14. If that occurs then INTC is currently listed at a bargain level, and long-term investors could get a hefty position at a very low price (INTC is currently in the low $20s/share as of the end of July 2013).

When to Jump In

Like many stocks, Intel represents a classic case where an investor has to guess when is the right time to buy in if the company's strategy does work and the stock goes up. It has the potential to rise to $30/share based on mobile market gain, but Intel could also flounder in the low $20 range. Then again, at least the company pays a dividend for the wait and trouble. So finding a low entry near $21/share is probably a good idea, but don't bet the farm on the company. Instead, be conservative and hopeful.

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.