This Semiconductor Giant Is Coming Back

Anindya is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Intel (NASDAQ: INTC), the world’s largest semiconductor maker, recently sold $6 billion of bonds in order to fund share buybacks. Although Wall Street doesn't see great value in Intel's stock, Intel does.

Some analysts believe the stock has become a value trap. In other words, investors buy the stock because they see they have to pay only ten times earnings and think it's a great bargain. But over the past five years, the stock has returned investors nothing. What will happen in the next five years, will the stock make a comeback or continue to languish?

I strongly feel Intel will stage a turnaround. While there are concerns over the PC industry growing negatively, a more objective view sees new developments that make the long-term case compelling for Intel.

Intel’s Processors for PCs and Servers Dominating

Intel has reestablished its leadership position in the PC processor space over the past year with rival Advanced Micro Devices (NYSE: AMD) losing ground. Intel's market share in PCs rose from 80.6% in Q3, 2011 to 83.3% in Q3 2012 at the expense of AMD. The lead is expected to widen going forward with new players like ARM Holdings (NASDAQ: ARMH) entering the PC market.

The company renamed its core processors; the new name is Haswell, replacing the Ivy Bridge of yesteryear. Haswell is Intel's first product line designed from the ground up for its Ultrabooks. Haswell-equipped Ultrabooks will have touchscreens.

Intel enjoys leadership position in the traditional workstation, server, and HPC markets with its Xeon product line. Now the company plans to aggressively focus on the HPC accelerator space dominated by NVIDIA (NASDAQ: NVDA). This will help Intel dominate the total server space.

Intel’s Processors for Smartphones and Tablets Emerging

Intel released its very first ultra-low power Atom system-on-chip products for smartphones and tablets. A single core Medfield Atom performs about in line with dual core Qualcomm (NASDAQ: QCOM) Snapdragon S4. CloverTrail+, the evolution of Intel's Medfield processor for high-end Android phones, would feature two cores and support hyperthreading. This will result in a doubling of processor power when it launches later this year. Intel teased the processor, calling it the Z2460.

An entirely new generation of Atom processors, called Lexington, is aimed at emerging markets. Lexington’s reference design adds support for dual-SIM slots and FM radio. Acer, Safaricom and Lava have all signed on to build using the new platform.

Intel recently announced the release of Bay Trail, the next-generation Atom aimed exclusively at tablets. Set to launch during the 2013 holiday season, the 22-nm, quad-core processors are targeting both Windows 8 and Android software platforms. Again, Intel is touting double the processor power while improving power efficiency and reducing prices.

Intel’s Capital Investment will Boost Revenue Per Share

Legendary investor Warren Buffett analyzes companies by calculating return on invested capital, or ROIC, to help determine whether a company has an economic moat -- the ability to earn returns on its investment above the cost of that investment. A higher ROIC implies that the company is using its capital more efficiently than others and creating value for its shareholders.

<img src="http://media.ycharts.com/charts/11d7bcea6c60d9b28c5515a980158831.png" />

Data by YCharts

Intel’s ROIC is currently standing at the top among the peers with 21.85%. The ROIC of Advanced Micro Devices is the worst with -30.20%. ARM Holdings has an ROIC of 13.74%, NVIDIA has 11.63% and Qualcomm has 19.90%. 

<img src="http://media.ycharts.com/charts/7ca23e3287f7aab83a6539be164dcdd1.png" />

Data by YCharts

Intel’s revenue per share has been growing at an impressive rate of 55.25%, following Qualcomm’s 90.24% and ARM Holdings’ 61.06%. Given Intel’s bright prospect in mobile technology coupled with its strongest ROIC, I expect that Intel’s revenue per share growth will top the charts by 2015. Intel’s share buyback program will drive the growth even at a higher rate. This will eventually show up in expanding bottom-line and rising earnings per share. 

The Bottom Line

Intel has fallen behind rivals Qualcomm and ARM Holdings in the mobile race. In the meantime, other chip makers such as NVIDIA and Texas Instruments registered smart recovery with the growing mobile devices market. Intel is trying to catch up in the mobile space with the release of some high-end cross platform compatible processors.

Intel is working jointly with Microsoft to combat Apple’s iPad in the $63.2 billion tablet market. Microsoft and Intel announced to unveil more than a dozen tablets. Although the joint venture is getting off to a slow start, it will certainly gather steam going forward. With maintaining its leadership position in traditional computing and emerging as a new player in mobile computing, Intel will certainly reward its long-term investors. 


Anindya7 has no position in any stocks mentioned. The Motley Fool recommends Intel and NVIDIA. The Motley Fool owns shares of Intel and Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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