Buy Intel Now For 2013
Douglas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Last week, Intel (NASDAQ: INTC) warned investors that it was likely to miss its previous revenue guidance of $13.8 to $14.8 billion; they're now expecting a third-quarter revenue figure of $13.2 billion. The market, in all of its predictable glory, rewarded the stock by taking it down by an additional 3.6% to close the week. The company cited weakening PC demand as a major cause for the reduction, giving expanding credence to critics who believe the era of the PC is ending. Despite this collection of apparent negatives, now is the time to begin acquiring Intel shares on weakness.
The Numbers Game
As a fellow foolish commentator points out, the announcement is classic Intel. The company has a long history of waiting until a few weeks before its earnings announcement – the next one is scheduled for October 16 – and then lowering guidance. When actual earnings results are then reported in line with the original expectations, the company can declare the figures “an earnings beat” and watch shares rise by much more than the lowered guidance cost them. This is a classic game of Wall Street expectation management, and one at which Intel excels.
Keeping the above probability in mind, revenues of $13.2 billion would represent a 7% decline from the same quarter a year ago. Were this to occur, it would be a negative for the company, but not an irrecoverable fall. The company is in a state of transition, and a lag, while costly, should not eliminate Intel from your consideration.
PCs Are Not Dead Yet
As everyone prepares for the launch of Apple’s (NASDAQ: AAPL) iPhone 5 on September 12th, rumors have begun to circulate that the next generation of iMac is set to be released later this fall. While the news is not the front page stuff that the iPhone thrives on, it is important to remember that PCs are still in use. Intel’s Ivy Bridge processors are expected to be included in the new iMacs, which should help Intel going into the holidays.
When Google’s (NASDAQ: GOOG) Motorola Mobility division announced the release of its new line of Razr smartphones, most of the chip-based focus was on the Qualcomm’s (NASDAQ: QCOM) 4G LTE chip that would be used in the U.S. models. Qualcomm is currently squarely in the lead in the 4G LTE space and is the featured choice in most of the new U.S. devices being debuted. What is easily overlooked is the strategic alliance entered into by Intel and Motorola early this year. The expectation is that while Qualcomm will dominate in the U.S., Intel chips are likely to be included in many of the smartphones being sold throughout the rest of the world. The relationship between Intel and Google should help Intel to dive more deeply into the mobile market.
The global divide begs the question of when Intel is likely to get into the 4G LTE market and give Qualcomm some serious competition. The company is already well into development of their own LTE chip, which is expected to be rolled out in 2013. As hype seeks other stocks and a lull descends on Intel shares, they are primed to offer investors an attractive entry point. If you are looking for a quick pop, Intel is not the name. Over the long-term, Intel is gathering steam and remains a great and relevant company.
A Response From the PC
“Rumors of my death have been greatly exaggerated,” the PC would like us all to know. Depending on how you differentiate between a tablet and a PC, the likelihood that the PC will disappear is zero. If we consider the current cadre of tablets available – ranging from the iPad to the Google Nexus 7 and so on – the one unifying feature is that they are consumption devices. They allow us to watch movies, read books and shop all from the comfort of our couches – you can even operate your TV with an app for your tablet.
Yet when it is time to get some work done, we all make our way to our desktop or notebook – to our PCs – to engage in productive activity. If we use this as the differentiator, the PC is not dying so much as it is transitioning. In conjunction with the release of Windows 8 by Microsoft (NASDAQ: MSFT) later this year, the major PC makers are designing tablet-like devices that will include near-full notebook PC functionality. These devices, most of which will include Intel chips, will change the form not the function of the PC. Remember, PC stands for “personal computer,” not “big, clunky device that cannot include a slick touch screen.” Talking about the death of the PC in these terms is like suggesting that because fewer people read newspapers, the news and news organizations are doomed.
In the simplest terms, Intel is a quality company with an excellent management team. The current lull should be seen as a buying opportunity, not a reason for panic. While the next few weeks may be rocky, over the long-term, Intel remains a must-have core holding.
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Mr. Ehrman has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Google, Intel, Microsoft, and Qualcomm. Motley Fool newsletter services recommend Apple, Google, and Intel. 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.If you have questions about this post or the Fool’s blog network, click here for information.