Intel Set to Make Waves in Mobile
Daniel is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The shift to mobile computing caught many ‘old’ tech companies unprepared, and as a result staying relevant has become a struggle for many of these firms. Intel (NASDAQ: INTC) is one of companies that was slow to catch on to this shifting environment, and unlike some of the chip makers that managed to capitalize on mobile, its share price hasn’t really gone anywhere over the last decade. Now, the company is finally planning to make its grand entry into the mobile arena, which could seriously disrupt the current status quo.
Old Chips, New Chips
So far, the mobile processing market has been dominated by two main players, Qualcomm (NASDAQ: QCOM) and ARM (NASDAQ: ARMH). Qualcomm currently holds some 50% of the mobile application processing market, and over 85% over the LTE modem market. Qualcomm’s Snapdragon processors are incorporated into all kinds of mobile devices, including the Samsung Galaxy phone. ARM on the other hand has the dominant position in licensing the design architecture for mobile processors, supplying Qualcomm among others, powering some 90% of the mobile processing market and roughly a third of the mobile computing market. ARM has experienced an absolutely meteoric rise in its share price over the last few years, going from around $5 in 2009 to over $40 at the moment.
Now, it appears as if the sleeping giant has awoken. Intel has introduced two new chips, Haswell and Silvermont, with which it aims to shake up the mobile processing market. Additionally, the company will offer an LTE chip. According to Intel, the 22nm Silvermont processor is capable of supplying three times the processing power of competing models, at only one fifth of the battery use. Whereas other chip makers function as ‘fabless’ companies, meaning that they rely on foundries for their manufacturing, Intel has these capabilities at home. This provides Intel with significant scale and cost advantages, as it has invested heavily in its manufacturing capabilities over the last few years.
The key question is whether the industry will adopt Intel’s new designs, and there are some indications that this will be the case. First of all, Samsung will be incorporating the Haswell processor into a new Galaxy tablet. Secondly, the Haswell processor will probably be seeing incorporation in a wide range of laptops, including products from Lenovo, HP, Dell, Apple, and Sony. All in all, Intel has announced around 50 devices that will be using either Haswell or Silvermont chips. Intel’s new chip offerings may finally be the catalyst investors have been waiting for so long.
Valuations and Metrics
Looking at valuations, Intel stock certainly has plenty of room to rise. The stock trades at only 12.57 times trailing earnings, substantially lower than Qualcomm’s 17.82 and ARM’s 69.37. On the other hand, the operating margin of 25%, while solid, is under that of the competitors mentioned here. The return on equity of around 21% is pretty good, and the company has plenty of cash to keep investing in product development and manufacturing equipment with about $17.16 billion on the books.
The Bottom Line
Although slow to catch on to the mobile computing market, Intel finally seems to have made the leap with the introduction of several new chips. Reportedly, these chips are both more powerful and more power efficient than competing models, and they should see incorporation in a range of devices. This development may finally be the catalyst Intel needs to break out to the upside, after years of lackluster performance. Additionally, the stock has plenty of upside looking at its current valuation.
Daniel James has no position in any stocks mentioned. The Motley Fool recommends Intel. 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!