Intel with the current market cap of ~$120 bil is often known as "dead" money in the stock market. The stock hasn't generate much return for its shareholders as far as capital appreciation is concerned. It did pay a generous 3%+ dividends depending on which price you purchased it.
A little over 8% in 5 years.....what a dud:
HOWEVER, earnings and revenue nearly doubled in the same period:
Which means the price to earnings have been shrinking rapidly in the last 5 years - so would that make Intel a value PLAY or a value TRAP?
Price to Earning ratio shrinkage usually stemmed from the fact that Mr.Market no longer believes the company can grow its revenue and earnings. Facing the declining aspect of business; Mr.Market wisely discount the price of the company - making the company appear to be "cheap". If the company is unable to stop the decline of the business by reinventing itself - the share price usually goes down with it. The "cheapness" of the company is due to that particular uncertainty.
What's wrong with Intel?
Intel gets majority of its business from building out processors for traditional Window-based PC and laptops. They also designed and manufacture processors for server (massive computers required by corporation to keep its hunger internal data and traffic director). In short, there has been a major decline in PC sales in the last two years due to the introduction of smartphones and tablets - which replaced the needs for traditional Window-based systems due to their mobility and ease of use. Intel did very little to invest into this mobile arm race. Hence, their business suffered and stock price has gone nowhere.
But why believe in Intel now?
Intel has appointed a new CEO recently. This new guy is very much into turning the corner for Intel into the new mobile computing space. The release of Bay Trail and Haswell processor shows tremendous promise in Intel's first step into the mobile space. A space which has been dominated by Qualcomm and ARM Holding's for the last three years. From iPad to Android, Apple to Samsung, nearly every one of these new smartphone and tablet has an ARM designed processor inside. This will no longer be the case with Intel's decision to get into play in this space.
What advantage does Intel have against the ARM/QCOM of the world?
1. Intel has advanced manufacturing capacity and technique and has always been the forefront. While ARM/QCOM outsourced their manufacturing to other companies such as Taiwan Semi and Global Foundry.
2. Intel already has the expertise in designing chips for decades. (if there's any doubt into what can Intel design - simply GOOGLE "Intel Bay Trail" or "Intel Haswell")
3. Intel's strong relationships with its customers - along with #1. Intel can offer better pricing because it is a vertically integrated company - they have the economy of scale.
4. Piggybacking on #2, any manufacturers of PC to tablets would want the best chips (performance/efficient) in their products or else they risk falling behind their competitors. It is my belief that Intel is currently designing the best mobile chip for launch in 2014-2015 - with its technological advance manufacturing process. It would be highly unlikely any competitors can catch up.
5. Intel's manufacturing side can offer custom chips manufacturing! So if Apple doesn't like Intel's offerings, they can design their own chips and have Intel build it!
6. Qualcomm is already on the defense. Processor manufacturer rarely put any advertising dollar for marketing to the end users. Rarely any users would realize that their Samsung Galaxy phone is powered by a Qualcomm SnapDragon processor nor do they care. So for Qualcomm to market to end users directly, it can only mean one thing. It fears Intel check-mate move into the mobile space. So in order to gain brand loyalty and instill brand images in the end users as its first line of defense, they market to the end users:
http://www.youtube.com/watch?v=N9Y_naTHPsY
7. "Death of PC" is a myth. Corporations and companies still use PC and will continue to do so in the foreseeable future. Also a lot of companies has been holding cash on their balance sheet instead of using it to hire people and upgrade their systems. When and if the U.S. economy picks up, these companies will upgrade their servers and employees' systems - which will very likely be Window-based (hence INTEL INSIDE).
To conclude, it doesn't matter which systems end users preferred - Android, iOS, or Window. Intel now has all that covered. Intel has also invested $13 billions this year alone into renewing and adding on to their current infrastructure. Some Wall Street analysts believed that Intel is overly invested, perhaps because they believe Intel can only create processors for Window based system (in a decline). There is currently no other processor manufacturers that has the advantage of being vertically integrated - all the pure manufacturers also won't be as technologically advanced. So even when ARM Holding can designs a better chip than Intel, Global Foundry and Taiwan Semi simply wouldn't have the same manufacturing technology to produce it. And that is exactly why Intel will turn into a growth story for the next two years. It has situate itself for complete dominance.
