Intel: An Intelligent Bet For The Long Term

| About: Intel Corporation (INTC)
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Intel Corporation (NASDAQ:INTC) is not getting much love from the stock market. As of Nov. 1, Intel is trading at $24.33, down another 0.53%. Despite posting record breaking revenue and profit numbers, Intel still has many doubters. Based on fundamentals alone, Intel should already be trading at around $30. Unfortunately, the company's stock is even having a hard time breaking the $25 price level.

Why the market malaise against Intel? It deserves a higher P/E ratio, right now it is only 13.14. Investors are heaping praises on Qualcomm (NASDAQ:QCOM), giving that ARM-chip manufacturer's stock a high 18.6 P/E ratio. The high valuation of Qualcomm has given it a market capitalization almost equal to Intel, $119.1 billion versus $121.1 for Intel. This unequal valuation between two chip-makers will soon realign once value-minded institutional investors realize the true essential price of Intel.

Higher Revenue, Higher Net Income

Compared to Qualcomm, Intel has a much higher gross revenue and bigger net income. As of December 31, 2012, Intel made $53.34 billion in total sales, more than twice Qualcomm's 2012 revenue of 19.21 billion. This huge sales advantage of Intel is in spite of the decline in traditional computer sales. If Intel can still increase its annual revenue despite the fall in PC sales, it clearly means Intel is more resilient than the industry gives it credit for.

The company also enjoys a very high 62% gross income margin. Yes Qualcomm also enjoys the same 62% gross margin but Intel's net income is $11 billion, which is again almost twice that of Qualcomm's $6.1 billion. So despite the rise of ARM-equipped smartphones and tablets, and the decline of laptops and desktop computers, Intel has remained very profitable. Intel is far from a dying dinosaur, it is a large and very cunning shark among smaller fishes.

Increased profitability against serious headwinds as experienced by Intel should be rewarded with just valuation. Naysayers kept bad mouthing Intel's inability to compete in the profitable mobile-computing market which Qualcomm and Samsung (OTC:SSNLF) are lording over. That is now about to change with Intel's latest generation of low-power-consumption but speedy x86 Atom quad core Bay Trail processors.

Intel Can Now Compete in Tablet Chips

Based on the recent healthy sales of Intel Bay Trail-equipped hybrid laptop/tablet products, Intel has finally found its footing in the lucrative tablet market. The warm market reception for the Asus Transformer T100 proves that an x86 processor can actually outperform ARM-based chips in terms of battery/performance ratio.

Qualcomm and Samsung are currently enjoying immense profits from ARM chips sales to smartphone and tablet manufacturers. Intel has a long way to catch up with them - but there will come a time when more people will once again opt to buy a Wintel tablet like they used to do with laptops and desktop computers.

Microsoft (NASDAQ:MSFT) is very tight with Intel. They have decades of profitable dominance in computer products. In tandem, this two can make a strong push towards the smartphone/tablet chip market now lorded over by Google's (NASDAQ:GOOG) Android and Apple (NASDAQ:AAPL). Intel has already made a great tablet-centric chip in its Bay Trail processor: more hardware OEM manufactures are already shipping productspowered by it.

Windows 8.1 tablets with Bay Trail processor are selling for $300 to $350, much lower than Samsung Galaxy Tabs and Apple iPads. While it is already assured of a steady order from Microsoft, Intel is not stopping with Windows 8.1 product. It is already predicting a $150 price tag for Bay Trail-equipped Android tablets which its partner OEM companies will soon ship out too.

This double-pronged attack by Intel makes sense because ignoring the rising market for cheap Android tablets will slow down its conquest of the mobile chip market. Less developed countries like China, India, and Latin America have less personal purchasing power but their huge population offers a huge profit potential for low-cost tablet products. A $150 Bay Trail-powered tablet is perfect for these countries.

As for the smart phone sector, Intel is already working on a more power efficient, less powerful version of the Bay Trail that is good enough for handset manufacturers. Right now, the Bay Trail model is just too powerful and only fit for tablets whose larger size can accommodate a larger battery. Once Intel launches the perfect chip for smartphones, it will have a rapid increase in revenue and net income.

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.