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3 Reasons to Sell Your Intel Stock

Although Intel (NASDAQ: INTC  ) stock may look cheap compared to the S&P 500, there's good reason for the low price tag. Between a faltering PC market, anemic revenue growth, and profitability concerns, Intel investors have a lot of things to worry about. Together, these factors certainly beg the question: Should you sell your Intel stock today?

PC sales still top dog
As exciting as it is for Intel to develop cutting-edge technology that threatens ARM Holdings' mobile computing stronghold, the company remains deeply entrenched in the PC market. Intel reported its second-quarter earnings results last week, showing that more than 63% of the company's revenue came from its PC client group segment. With worldwide PC shipments as bad as they've been, it's not surprising that investor enthusiasm would be muted toward the company's mobile computing ambitions. Simply put, it's going to take a considerably large tail to wag this dog.

Anemic revenue growth
Without revenue growth, a company's earnings growth potential is dampened because there's only so far cost-cutting can take profitability to new heights. Intel lowered its full-year forecast, now expecting revenue to be flat year over year, which doesn't bode well for profit growth. Analysts expect Intel to post a 12.2% decline in earnings this year and grow by 5.9% in full-year 2014, driven by a 3.9% increase in revenue. For the long-term investor, profitability growth remains a fundamental driver of shareholder returns. Will a 5.9% growth in earnings from a weak comparable be enough to drive Intel stock higher?

Falling prices
Assuming Intel is successful as it gears up to enter the ultra-mobile space with its upcoming Bay Trail processor, it'll likely have a negative impact on the company's average processor selling price. In order for Bay Trail to gain market share against the ARM competition, I'm expecting its average selling price to be somewhere in neighborhood of Qualcomm's, which is about $22 -- roughly one-fifth of Intel's estimated average selling price of $107. Additionally, the mobile computing revolution continues to put negative pressure on the price of PCs, further compounding Intel's average selling price pressures.

The hope is that any future decline in processor average selling price can be offset with an increase in unit volume, but that's not guaranteed, nor does it mean total dollar profits will remain stable. Even if Bay Trail can maintain profit margins in line with the rest of Intel's processors, a $22 or even $30 processor simply doesn't have as much available profit as a $107 chip.

Ultimately, Intel's profitability prospects will be driven by a number of variables, including how the overall PC market fares, if average selling prices decline due to consumers shifting to products like Bay Trail, and if Intel can make up any shortfalls with sufficient unit growth. It's not exactly clear-cut.

No catalyst in sight
We may get a better sense of Intel's future prospects during its investor meeting in November, but it likely won't be until its 2014 earnings results that investors begin to get the scoop how these headwinds are actually influencing results. At that time, Intel's Haswell and Bay Trail processors will have made their run, investors will know if the PC market has begun to stabilize, and we'll know if ultra-mobile products are hurting Intel's total profitability thanks to declining prices.

If you're an Intel shareholder, the question you should ask yourself is if it's worth waiting around for the clouds of uncertainty to potentially clear up. Being a longtime Intel stock owner myself, I'm seriously considering taking my own advice and selling my shares in the coming weeks. There are plenty of compelling opportunities where the path to long-term shareholder success is much clearer.

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Read/Post Comments (8) | Recommend This Article (2)

Comments from our Foolish Readers

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  • Report this Comment On July 25, 2013, at 9:08 PM, Galway21 wrote:

    If I didn't know better I would think you are trying to drive Intel out of business .. That's one way of getting ARM the sole supplier.. I like how you bold printed their Name,, Where is your non bias

    Martin Kelly

    Small Investor

  • Report this Comment On July 25, 2013, at 9:36 PM, musicbrain wrote:

    This article is basically a bashing of Intel and is highly slanted against it. You eliminated facts on what Intel is doing, such as working NOW on reducing the % of PC's as their business.

    You fail to inform the reader that Intel bought their own CHIP FOUNDRY, capable of producing massive quantities of chips of all kinds, and making a fortune selling them to all the chip vendors.

    You fail to mention that the supplier of the most chips in the world is TSM, who cannot meet demand on dated design chips, and are at this time, completely incapable of making the 18 and 16 nm chips, like Bay Trail, Haswell, etc.

    You fail to mention that Intel has been buying and partnering with other businesses to branch out to greatly increase their server and other businesses.

    Your article is a disgrace.

  • Report this Comment On July 25, 2013, at 10:06 PM, stretcho44 wrote:

    Steve did the best he could be expected to do.

    Steven Heller's Education

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    I write about individual companies within the context of long-term investing.

    Favorite sectors: Technology, Consumer Goods, and Industrials.

  • Report this Comment On July 25, 2013, at 10:26 PM, musicbrain wrote:

    If his best shows ignorance of the facts, and shows selective information he chose to include, which he couldn't have known without knowing the positives, I have no respect for a writer who operates like this.

  • Report this Comment On July 25, 2013, at 11:11 PM, vantan wrote:

    Ashraf is the axe on Intel. His articles provide the most useful insights and he currently likes Intc. Google though has just released a new Nexus 7 tablet with great features running a Qualcomm cpu and a Chromecast dongle that can be viewed as a simple pc ( and possible precurser to a full Chromebook using tv as monitor and Phone as keyboard ). So there is legitimate concerns re INTC future i.e. not a 99% long term winner or loser. Hedging might be appropriate.

  • Report this Comment On July 26, 2013, at 2:15 AM, privatenguyen wrote:

    Back to school season shoul boost computer and laptop sales. As a student, I do not see how one get work done on an ipad. I currently own an aaple ipad and a tablet. They are only good for reading news and browsing photos. I don't see computer going away. Everyone I know have computers. i think that computers maybe selling less but the bottom is already reached, we might in fact see a rise in sale soon.

  • Report this Comment On July 26, 2013, at 2:19 AM, privatenguyen wrote:

    This article gives nothing new. We all know that computer sales are down. The writer writes as if computers are going away for good. This is a very poorly written article. Nothing new was offered.

  • Report this Comment On July 26, 2013, at 3:25 AM, Analysis101 wrote:

    The need for PC is so weak that only 321 million are expected to be sold this year.

    And it's clear that the PC is dying because IDC estimates sales to be a mere 317 million in 2014 and only rise to 333 million in 2017.

    So to sum it up, between 2013 and 2017, only 1.6 Billion PC units will be sold. All this is according to IDC.

    And that's bad for Intel??? Really???

    So basically, Intel will continue to generate $30 to $32 Billion annually for the next 5 years from PC sales alone. That's desktops and laptops only.

    That's not counting potential tablet sales, smartphone sales, and still growing server sales.

    Let's see what may happen by 2017.

    Intel will have at least $32 Billion revenue from PC sales alone.

    They will have at least $16 Billion revenue from data center group sales.

    About $3 revenue from Software and Service group.

    About $1.5 Billion to $2 Billion revenue from all other areas combined.

    With the start of Baytrail and Merrifield advancing to even much more advanced mobile focused chips by 2015 and beyond,

    they may have about 50% of tablet market and 25% of smartphone market by 2017.

    (Intel plans on being number one chip company for both by that time)

    With rough estimates of double digit group for both tablets and smartphones,

    we may see over 410 million total tablet sales and about 1.6 Billion smartphones.

    Intel said they will dominate both group, but let's stick with 50% tablet and 25% smartphone.

    At about $25 ASP for tablet and about $20 ASP for all types of smartphone, that could add about $13 Billion in revenue to Intel.

    For a total of $65.5 Billion.

    And that's extreeeeeeeeemly conservative for Intel by total market sales volume and Intel's market share.

    That averages to an annual revenue growth rate of 5%.

    And sell side analysts think Intel will see no revenue growth or even drop in revenues year after year. So basically Intel has a very good chance of beating analyst expectations for the next 5 years. And that's all that the stock needs to start a steady rise for the next 5 years.

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