- Advanced Micro Devices (NYSE: AMD ) has out-innovated Intel's much larger R&D department over the past decade. For example, it was AMD that introduced 64-bit computing to consumers and AMD's 64-bit instruction set that became the standard when Microsoft (Nasdaq: MSFT ) designed the next generation of Windows software. What has Intel invented lately, other than hyper-efficient chip-manufacturing methods?
- The company is nearly absent from the mobile revolution. Ruling the PC world with an iron fist is nice, but that platform is fading as the next generation of computing is smaller and lighter and needs to consider battery drainage. How many Atom smartphones and tablets can you name? Zero? That's what I thought.
- Arguably as a direct result, Intel's compound revenue growth over the past five years is an inflation-like 3.8%. Mr. Softy, which many investors (me included) are tagging as aging and spent, has produced 10% annual growth over the same period. Wouldn't that make Intel even older and more tired?
- The company has focused on increasing dividend payouts and share buybacks lately. By contrast, other tech titans, such as Oracle (Nasdaq: ORCL ) and Hewlett-Packard (NYSE: HPQ ) , have gone on shopping sprees instead while keeping their dividends svelte. Has Intel given up on growth?
Not so fast!
But then you'd be making a terrible mistake. All four of those criticisms are turned on their head by an announcement from Intel last week: The next chip-making process will not only be smaller as always, but it's also done in 3D.
Put away the red and blue glasses -- this third dimension will be felt more than seen. Here's what it does to the bullet list above:
- This is hardcore innovation at its finest. Intel decided to think outside the box and then sent the box off to be pulped and recycled. Ignoring highly technical mumbo-jumbo, these 3D chips will run faster and cooler on less electricity.
- That makes the new chips just about perfect for mobile computing. If you're laughing at the Atom line now, you'll change your tune when the 22-nanometer, 3D-style Atom chips roll out. ARM Holdings (Nasdaq: ARMH ) and MIPS Technologies (Nasdaq: MIPS ) just saw a minor threat turn into a serious rival, and AMD has no response to this technology today.
- Intel's five-year sluggishness masks a surge in the past few quarters, powered by highly capable Core chips that meet a rebounding enterprise-computing market. The 3D chips will also work great in server systems, where performance per watt is perhaps even more important than in mobile systems. This adds up to a continued surge that should make you forget the late 2000s rather quickly.
- And of course, all of this was done while pumping billions of dollars into a tremendous dividend-and-buybacks policy. Intel doesn't have to choose between great R&D or great shareholder returns, because it has the budget to do both.
Buy Intel today, and you get one of the strongest and safest dividends around with tremendous growth opportunities to boot, all at less than 11 times trailing earnings. At 3.1%, Intel's yield is the highest of any stock mentioned in this story and the 26th-highest yield out of the 56 stocks on our Income Investor scorecard.
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