If the PC Really Rebounds, Intel Could Outperform in 2014

Highly levered to the PC market, Intel's fortunes in 2014 will be told once the trends in the PC market are clearer.

Jan 1, 2014 at 11:15AM

Intel (NASDAQ:INTC) has been maligned for missing the mobile revolution. However, if you stop and think about it, Intel's PC business is larger than the entire mobile system-on-chip market.

This can be verified with some pretty simple math. According to Intel, the mobile applications-processor market comes in at about 1.5 billion units. Assuming a $20 average selling price for these chips, it stands to reason that the entire mobile chip market comes in at about $30 billion, give or take a few billion. Intel's PC chip business will be about $33 billion in 2013.

Mobile or not, Intel's fortunes depend on the PC
Step back and really absorb the magnitude of this fact: Some $33 billion of Intel's roughly $53 billion yearly revenue comes from PCs. Further, this business had a very nice operating margin of around 35% during 2013, even amid excess capacity charges taken early in the year. Investors should make no mistake -- the company is dependent on the PC market in a big way.

Now that the company is finally making meaningful inroads in mobile, this will be a very nice incremental opportunity. Indeed, if the company is able to take 20%-30% of the mobile apps processor market, then that's a cool $6 billion-$8 billion in incremental revenues. But it won't compensate for a PC market that continues to crater.

It's a double-edged sword
If the PC market continues to crumble, it would take sheer dominance of the mobile market to compensate for that decline -- only the data-center group's growth could even have a chance of driving Intel back to revenue growth. However, if the PC market rebounds, the game really changes. Mobile goes from a save-the-company initiative to an incremental growth opportunity.

Is the tide turning?
According to Digitimes, chip manufacturer Taiwan Semiconductor (NYSE:TSM), or TSMC, has apparently begun to see an uptick in orders from PC-levered names such as AMD (NASDAQ:AMD) and NVIDIA. (Intel builds its chips at its own manufacturing plants). While this is mildly positive for TSMC, which is also levered to the fast-growing mobile markets, it could end up being very positive for Intel and the PC-levered names in general.

As far as Intel is concerned, it has been taking share in PCs over the last couple of years, so an uptick in sales over at AMD probably is more of a secular signal than a structural improvement in AMD's market-share position. This is bullish for the PC market as a whole and, by extension, Intel. This is also probably why Intel's shares are near a 52-week high.

Looking ahead to 2014
It's too soon to tell whether this alleged uptick in PC demand is a long-term phenomenon or a proverbial flash in the pan, but there is now legitimate hope that Intel may be able to exceed the guidance that it gave at its analyst day of a mid-single-digit PC revenue decline, coupled with flat operating profit.

Foolish bottom line
While management gave uninspiring guidance at its analyst day, nobody really has a handle on what the PC market will do in 2014. The trends seem to suggest that emerging markets are still very volatile due to tablet growth, but that mature markets are stabilizing. Only time will tell how it all plays out.

One thing is for sure: If the PC market surprises to the upside, Intel, as well as other PC-levered names, could outperform after several years of struggles. And that, in this highly frothy market, could be where the opportunities lie.

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Ashraf Eassa owns shares of Intel. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

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The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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