Why I'm Bullish on Intel

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

Having previously dominated the PC industry, it looks like Intel (NASDAQ: INTC) is finally adapting to the Android platform in smartphones and tablets. The world's largest chip maker has been a leading force in the market for microprocessors; however, the company has been facing some problems, mainly because of the decline in the PC industry. Intel's late entry is probably one of the major factors why its two biggest competitors are currently enjoying success in the market for tablets and smartphones.

QUALCOMM (NASDAQ: QCOM) and NVIDIA (NASDAQ: NVDA), in this particular industry, have been around for quite some time now, and they lead the industry after partnering with some of the biggest manufacturers. Intel, on the other hand, is still new in the industry and only has a handful of smartphones and tablets. But all that is set to change with the company's solid plan going forward.

Valuation

Intel, with a market cap of over $120 billion, is currently trading around $24. After falling to nearly $19 dollars last year, Intel's stock has been going up. The company also has a reputation in paying regular dividends. Intel's latest earnings report was relatively solid, with respect to the decline in the PC market; Intel's biggest business strength. The company's quarterly revenue and shipments fell by 3% and 7%, respectively, while the PC market saw a very sharp decline of nearly 14% for the quarter.

NVIDIA is currently trading around $14.50 and has a market cap of over $8 billion. The company's stock has seen a sharp increase after hitting below the $11.50 mark last year. QUALCOMM, on the other hand, is currently trading around $60.5 with a market cap of over $104 billion.

Even though Intel is optimistic about the future and has a solid plan, it is still uncertain on what the company will achieve and where it currently stands. Here is a SWOT analysis of Intel, which will give investors a better picture of where Intel currently stands.

Strengths 

Possibly, the biggest strength for the company is its brand name and recognition. The company has been a leader in making chips for decades and it currently dominates the market for PC chips. One of the reasons why Intel might be able to get a decent market share in the smartphone industry, even after a late entry, is because of its brand loyalty and image. 

Its current position in the PC market is another strength for the company, and even though the overall PC market is declining, Intel will continue to cash in with the business for years to come. Also, the PC market might not be dead in the future and technology, along with innovation, might take the PC industry to the next level. 

The launch of Windows 8 hybrids and convertibles can be seen as another strength for the company; a place where Intel's processors are nearly perfect. These hybrids are targeted towards a specific audience and even though this specific type of product hasn't been that successful, the company believes that these hybrids will definitely pick up in the future, as the concept is just too big to ignore. 

Aside from that, Intel's current range  of processors is another core strength for the company. Previously, the company focused solely on performance; however, Intel has definitely stepped up its game in power efficiency as well, with its Atom processors. Also, its power efficient upcoming core processor, Broadwell

Weaknesses

Possibly, Intel's biggest weakness is the declining PC market and even if the PC market can turn around, it will take several years before the PC market can improve again. Till the PC market dies or turns into something different, Intel will continue to face declining revenues and profits.

Another weakness for the company is its late entry in the smartphone and tablet markets. While Intel only has a handful of devices in the industry, QUALCOMM and NVIDIA are already enjoying their success. The company won't be able to cause major problems to its competitors and getting a decent market share in this particular industry will require several years.

Opportunities

Intel definitely has numerous opportunities with different types of markets to target including the current PC market, the market for tablets/smartphones and the market for Windows 8 hybrids. 

The smartphones and tablets market is huge for Intel and is possibly the company's future. Intel's current position in the industry is relatively weak, but the company is already partnering with some of the leading names in order to use its chips in Android-based smartphones and tablets.

The Windows 8 hybrids are still at their early stage, which is why they haven't been that successful. However, Intel believes that these will definitely pick up pace in the near future as Intel already has contracts with DellHP and Lenovo.

Threats

Intel's biggest competitors are QUALCOMM and NVIDIA, having been around in the smartphone and tablet industry for quite some time now. Both companies have been involved with some of the most successful smartphones and tablets. Even if Intel can step up its game in this particular industry, the company will only be able to capture around 10% to 15% of the market by 2017.

Things to be optimistic about

Firstly, Intel's entry into smartphones and tablets is crucial for the company's future success. After partnering with Lenovo for an Intel-based smartphone, the company has now partnered with Samsung for its upcoming tablet. Not only will this help Intel get a good market share, but will also help the company in future partnerships with leading manufacturers.

Windows 8 is also something to be optimistic about and even though it hasn't done too well, it has great potential. Even if the Windows 8 ultrabooks don't get successful, the hybrids and convertibles will definitely pick up pace, soon.

Aside from that, the company also has plans to enter and improve in newer emerging markets including China and Thailand.

Conclusion

Even though Intel showed a profit and revenue decline in its last earnings report, I'm still bullish on Intel and I believe that the company can hit as high as $50 very soon. Yes, it will take some time before Intel can get a strong hold of the market for tablets and smartphones; however, with deals like the one with Samsung, I think that the company will be able to get a good chunk of the market in less than four years. QUALCOMM and NVIDIA, on the other hand, will definitely face some problems with Intel looking to become the third dominant force in the industry.

When it comes to dominating markets, it doesn't get much better than Intel's position in the PC microprocessor arena. However, that market is maturing, and Intel finds itself in a precarious situation longer term if it doesn't find new avenues for growth. In this premium research report on Intel, a Motley Fool analyst runs through all of the key topics investors should understand about the chip giant. Click here now to learn more.


Yasir Idrees 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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