The Misunderstood Chip Giant

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

Nowadays, many investors are looking at Intel (NASDAQ: INTC) from different viewpoints. Some might consider it an excellent investment opportunity; some might think the company will sink into oblivion. It is time to step back, forget about its performance in the stock market and think about its Strengths, Weaknesses, Opportunities and Threats.

Strengths

  • Intel is the global market leader in the semiconductor business. Currently, it owns nearly 60% of the global microprocessor market, much higher than that of its closest competitor, Advanced Micro Devices (NYSE: AMD) of nearly 25%. The third player, Nvidia has around 16% of the market.
  • Intel is also the originator and the leader in x86 microprocessors, and it now has 80% of the global market share of the personal computers. The other 20% belongs to AMD.
  • Globally recognized brand name with strong customer loyalty
  • Strong historical leadership legacies with strong ties to the company. Intel has only 5 CEOs in 45 years of operation. 
  • Intel is still the global leader in computing innovation. The Intel history has been proven with its microprocessors. It has a regular two-year upgrade cycle and introduces a new microarchitecture every two years and manufactures them in its own facilities.

Weaknesses 

  • The majority of Intel’s revenue was from its PC Client Group, accounting for around 66% of the total revenue. It was affected negatively by the overall weak PC environment.
  • Customer concentration in the PC business. Hewlett-Packard (NYSE: HPQ) took around 19% of the total revenue, whereas Dell (NASDAQ: DELL) accounted for 15%. Both of these customers were also affected heavily by the sluggish PC industry.
  • Currently, Intel has very low penetration in the smartphone market. It was reported by Strategy Analytics that Intel just accounted for 0.2% of the smartphone chip market in the first half of this year, whereas Qualcomm (NASDAQ: QCOM) was the leader with 48.1% of the market.  
  • Paul Otellini, who has managed to grow Intel’s revenue at around 5% per year, will step down in May, after running Intel for 8 years.

Opportunities

  • Overall, with $10.5 billion in cash, Intel has tremendous resources for R&D spending for the next big thing of the technology market, including cloud computing, mobile, tablet markets and even PC demand from emerging markets.
  • International Data Corporation has forecasted that the worldwide PC shipment would experience a 7.1% annual growth in the period of 2013-2016. It is optimistic that the opportunities for PC in the emerging market would “form the bulwark of the market and help sustain double-digit portable PC growth in the long run.”  
  • Intel currently has very little market share in the mobile market, but it is working hard to increase this. The wheel is already running. Intel’s mobile processors would be used inside Motorola Mobility and Lenovo’s phones. In the past, Intel has helped Apple to use Intel’s processors for its Mac, rather than the PowerPC. I think it could potentially do the same for Apple’s mobile products.
  • Motorola RAZI I, along with the other six devices, has incorporated Intel’s Atom x86 Medfield. In addition, in the mid-2013, we would expect to see Intel’s low-powered chips for phones and tables. “The new line of low-power processors will see power consumption move closer to that rival ARM's, while reducing production costs through a process shrink, the sources indicated.”, according to Digitimes.
  • To meet the growing demand of more than 33% per year through 2015 to over 4.8 zeta bytes per year with 4GB of data traffic every day. Intel launched Xeon processor E5-2600 with the expectation to connect 15 billion devices and more than 3 billion users by 2015 for the cloud market. 

Threats

  • Fast changing customer preferences in the technology field might dampen its global market position for PC market.
  • In the technology shift nowadays, Qualcomm is considered the biggest threat for Intel with more a much stronger portfolio, more customers and biggest market share in the mobile chip market. 

Foolish Bottom Line

The market currently underestimates Intel’s capability due to its reliance on the weak PC environment. However, I would bet on its innovation, potential opportunities for the mobile markets, cloud computing for the next big thing. Intel is valued at only 8.7x its trailing P/E and is paying a 4.4% dividend yield. Personally I would think Intel should be in the long-term income portfolios of many investors.

 

 

 

 

 

 

 

 

 

 


hoangquocanh has no positions in the stocks mentioned above. The Motley Fool owns shares of Intel and Qualcomm. Motley Fool newsletter services recommend Dell 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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