Intel (NASDAQ: INTC ) has seen its fair share of pain over the last year, and justifiably so. Worldwide PC shipments have declined 8.3% since the third quarter of last year and the main driver of this trend has been the explosive rise of tablets. Intel's chips have yet to make a big splash in the tablet market, but that's expected to change soon. Microsoft (NASDAQ: MSFT ) is going to release the Surface Pro tablet, featuring Intel's Core i5 processor sometime in early 2013. Starting at $899, this tablet isn't likely to be a home run because its battery life is only expected to last between four and five hours, and the price may be prohibitive for many in the market for a tablet.
However, for Intel, there isn't as much urgency to get into the tablet market as one might think. The company just caught a full-year estimate raise from Wells Fargo's David Wong, indicating that chip demand may have found some footing. Full-year earnings estimates for Intel were raised by 4% to $2.10, implying a forward P/E of 9.8 from current levels. This estimate is still below last year's result of $2.39, and is also below the consensus estimate of $2.11. Although this is not something to write home about, the reasoning behind it might surprise you. Wong believes strong smartphone and tablet growth will translate into strong server market demand for Intel, which already controls 90% of the server market.
Intel has hinted that 122 tablets or 600 smartphones is enough traffic to occupy one server. Gartner estimates that 170 million smartphones shipped in the third quarter of this year, and it's expected that over 650 million smartphones will have shipped in 2012. On the tablet front, Gartner believes 110 million tablets shipped last year. David Wong estimates all these shipments could be worth up to $2 billion in future server revenue when you assume $1,000 worth of Intel gear would be in each server. While it doesn't sound like a lot of revenue, it's a boon for Intel, considering this division contributes to more than a quarter of its total profit.
Come 2014, and Intel will become a competitive threat in mobile computing because it will have shrunk its transistor fabrication process down to 14-nanometers. At that time, Taiwan Semiconductor (NYSE: TSM ) is expected to ramp up 20-nanometer production, allowing Intel to maintain its three-year technological lead against the competition. At 14-nanometers, Intel's architecture will prove more energy efficient than ARM Holdings' (NASDAQ: ARMH ) , which will tip the scale back in favor of Intel's processors. This is just another great reason to buy Intel shares today.
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, our analyst runs through all of the key topics investors should understand about the chip giant. Better yet, you'll continue to receive updates for an entire year. Click here now to learn more.