What Will Intel's New Core Competency be?
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When a company achieves greatness it is usually because they are extremely good at one product or line of products. An investor should be mindful of this aspect of investing. Coca-Cola (NYSE: KO) comes to mind when I think about this topic. Coca-Cola is known for a bubbly little drink known as Coke or Coca-Cola. The company is really good at making this product as evidenced by its continued popularity. Its superior stock price performance has reflected this popularity by returning 43% over the last 5 years versus a 15% loss by the S&P 500 during the same time period, as of yesterday.
Intel (NASDAQ: INTC) has always been an adept chip maker; however, according to the business section of Intel's 2011 Form 10-K under company strategy there is a definite shift in their focus, "Our goal is to be the preeminent computing solutions company that powers the worldwide digital economy. We believe that the proliferation of the internet and cloud computing has driven fundamental changes in the computing industry. We are transforming our primary focus from the design and manufacture of semiconductor chips for PCs and servers to the delivery of solutions consisting of hardware and software platforms and supporting services." I am far from a tech guru but I take this to mean they are shifting from a purely chip business to a product line consisting of hardware and software. What will this new focus mean? It will probably mean that they are going to utilize software in conjunction with their manufactured hardware platforms.
When I first saw the headline that Intel is buying McAfee the first question that came to my mind was, why would a chip company be buying a company that makes antivirus software? Intel's data center group which is the segment that involves server platforms and cloud computing services was number two as a percentage of revenue and operating income at 19%, or $10 billion, and 29%, or $5 billion, respectively. Intel's acquisition of McAfee complements the cloud computing service. The news fact sheet put out by Intel on May 4, 2012 said that security remains an obstacle in the adoption of cloud services. McAfee has come out with services to address these issues such as the McAfee Cloud Security platform. I am speculating that this is the company's attempt to position itself as a dominant player in "safe" cloud computing. So, strategies are in place to cultivate growth in this area.
There has been talk in the media about Intel offering TV service all in an effort to sell Intel chip based set top boxes. Set top boxes are a definite deviation from computers. Programming costs and bandwidth issues have thus far been a barrier. I am skeptical about this venture and will be following it closely.
Dim Outlook for Mobile
Intel's troubles in the mobile market have been widely documented. The 2011 Intel Form 10-K said that they faced "established" competition from ARM based chip makers such as Qualcomm (NASDAQ: QCOM) and Nvidia (NASDAQ: NVDA). A bright spot according to this report is that Intel has a joint effort with Google to utilize their Atom Processors in the Android and Motorola smart phones.
It looks like Intel is pushing towards the cloud. The following questions that are on my mind going from this point forward regarding Intel's prospects: Will McAfee ease the security concerns of the cloud computing marketplace thus spurring future sustained growth? Will Intel’s old core competency be bolstered by growth in international markets? It was the growth in the Chinese market that helped drive sales in the PC Segment in 2011. Will Intel ever get a foothold in the growing mobile computing market? The shift in focus could mean future struggles for Intel.
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