The Bear Take on Intel

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Brendan Byrnes: Hey Fools, I'm Brendan Byrnes, joined by Andrew Tonner, our tech and telecom analyst for Fool.com.

We'll take a look at Intel, one of the bigger companies in your sector. Maybe a little bit of a skeptical look; digging a little bit deeper on Intel, what did you find?

Andrew Tonner: I think it's interesting to note that people certainly talk about the bullish thesis for Intel. They say, "Intel has this R&D prowess, and their fabrication prowess," which truly are second to none on both accounts. It could be kind of a saving grace for the company, but I think that misses some of the dynamics that the markets are trying to move into.

Obviously, we know one of the big cases against buying Intel is that they have no play in the booming semiconductor space for tablets and smartphones. That's the ground where ARM Holdings and its chipset licensees, the Qualcomms and NVIDIAs of the world, truly dominate.

Intel wants to break into that -- that's where the growth is -- but at the same time people don't realize that there's still a built-in revenue cliff when you look at the dynamics of this market. It would take around four mobile chip sales to generate the equivalent revenue of one CPU microprocessor for Intel.

Even if they were, in theory, to gain traction in that space, they're probably not going to have the same modernization or the same revenue sustainability as they have in their current market for computer CPUs.

There's also the built-in play. People say, "Well, maybe mobile's not great, but then there's this cloud back-end that Intel could tap into." I think when people look at these markets, they're missing some of the rough math on how revenue will script out for the company.

They're both true; they have the best fabrication in the world, and that could be a huge win for them. People talk about Intel moving over to 14-nanometer by 2014, basically out-manufacturing the rest of the competition -- people like Taiwan Semiconductor, who might not be able to ramp as fast as Intel -- but at the same time even if they break into these markets, which is a huge uncertainty to begin with, it might not have the end business result that investors think it will.

You look at Intel as a company. People say, "It's priced for negative growth," but at the same time I think some of that skepticism is very, very justified, too. You see a dwindling, maybe stagnant, PC market. Yeah, you'll have some growth from servers as well, but at the same time the math might not hold up, or if they spend to get into these fields it might not be as lucrative for them as some investors might think.

Intel's a value play, but at the same time I don't know if it's going to be the kind of story you see rebound especially quickly.

Brendan: All right. Definitely looking cheap based on the multiple, but certainly there are some reasons why, at least for Intel.

Andrew: Exactly. Some investigation.

Brendan: Thank you, Andrew. Make sure you head over to Fool.com for more analysis.


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  • Report this Comment On January 10, 2013, at 1:09 PM, MastodonCap wrote:

    This story is crap, Intel is the king of the industry and highly undervalued as well. The will break into mobile and succeed there as well... Read:http://blogs.ubc.ca/daveberns/2013/01/07/this-is-why-intel-i...

  • Report this Comment On January 10, 2013, at 1:19 PM, dan11d wrote:

    This lower-margin space is exactly how Intel can steal the revenue from the fabless guys (nVidia, Qualcomm). With a more advanced process node, sooner, and owning it themselves, they can match or beat the price per chip to phone/tablet OEMs.

    This hinges on if they can execute quickly enough to get competing chip designs to the fab. If not, they will be late, and have few design wins. Their new phone/tablet parts that came out this past year have been a pretty good start (Medfield in phones like Razr-i, Clover Trail for various tablets), and the industry eagerly awaits the move to 22nm mobile parts w/LTE.

    Frankly, I see nVidia between a rock and a hard place: namely Intel (who's challenging their HPC & Sci-computing space), and Qualcomm (who's making better mobile products), not to mention Samsung (who's going to be a growing threat to everyone else with their in-house fabs and end-product experience).

  • Report this Comment On January 10, 2013, at 4:52 PM, verylargelarry wrote:

    "Intel is the king of the industry and highly undervalued as well."

    "With a more advanced process node, sooner, and owning it themselves, they can match or beat the price per chip to phone/tablet OEMs."

    Another round of Intel-is-the-greatest-and-will-devour-all-competitors.

    Meanwhile, ARMH, QCOM, & others appreciate nicely while INTC languishes.

    ATOM will not save this stock, they have been left behind. Mobile will replace the PC (duh) and Intel is scrambling, and very late coming to the party.

  • Report this Comment On January 10, 2013, at 6:20 PM, dan11d wrote:

    Larry, you missed my main point, and that's certainly not "Intel.. will devour all competitors".

    Intel has an advantage over the competition because they own their own fabs that operate at a more advanced process node. It's fact that nobody is arguing.

    However, they are at a disadvantage because they are late in getting their designs out and have needed time to learn the phone/tablet space. The upcoming chips (and more importantly, end-product quality) will be critical here.

    I'm curious why do perceive them to be inconsequential in the next 2-5 years in this domain.

    How will this all balance out? Wish I knew! I'm trying to look at engineering, business, and industry details and not get caught up with "how the market performs."

    I'm bullish on INTC at +3 years. Their recent phone/tablet chips are a stepping stone, but the roadmap is accelerating for them. I think Samsung and Qualcomm are already priced for their expected growth. nVidia I worry about. It hasn't seen a run-up, which may indicate good opportunity, but only if they execute on a really great product. TI pulled out of the cell/tablet SoC game.

  • Report this Comment On January 10, 2013, at 11:27 PM, MastodonCap wrote:

    well put dan...

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