If the PC Really Rebounds, Intel Could Outperform in 2014

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 (NYSE: 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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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 02, 2014, at 7:25 AM, bluesky64 wrote:

    I prefer AMD as a much better return on my investment. I am telling my brokerage firm to short intc and go long AMD.

    Each week AMD has great articles about sold out products. Each week writers are telling us intc is better. I am leaning towards consumers demands AMD.

  • Report this Comment On January 02, 2014, at 9:58 AM, masterwallstreet wrote:

    In my opinion only, Intel got downgraded to a neutral with a $20 price tag. AMD just got upgraded from a buy to a strong buy. Here's what should bolster bitcoin in 2014 is a new article on CNBC. That will help AMD stock. In my opinion I am seeing a reversal here. People are starting to short Intel and long AMD in my opinion. I am not a professional. Is it possible I could right? Could this be a reversal how the market is trending now? Wouldn't it be a great time to buy AMD with all of the positive news coming out bout AMD? Wouldn't it be a bad time to buy Intel with all of the negative news coming out about Intel?

  • Report this Comment On January 02, 2014, at 11:09 AM, bluesky64 wrote:

    Wow just out

    China's Micro Computer Magazine awards AMD best Product and best Technology of 2013;

  • Report this Comment On January 02, 2014, at 11:45 AM, bluesky64 wrote:

    Sure sound like it

    AMD Bitcoin/Litecoin Winner : Wedbush Analyst Luria Jan 2, 2014

    .

    AMD is a big winner in worldwide cryptocurrency movement:

    We believe the majority of these ASIC chips are fabricated at Taiwan Semiconductor (NYSE: TSM) and GlobalFoundries. We also believe AMD (NYSE: AMD) is positioned to benefit from the rise of alternative coins such as Litecoin as AMD chips are preferred by Litecoin miners over other competitor GPU chips."

  • Report this Comment On January 02, 2014, at 10:11 PM, mtechac wrote:

    Intel outperform in 2014..?? and I guess pigs can fly on 2014, too..? Hahaha..!!

    Intel is SOL for the next two years.. not because it does not have good products but because it's profit model does ot work with the ARM profit models and because Intel will begin losing its 64 bit server, laptop, tablet, and workstation profits beginning this year...

    Intel cannot compete with the ARM based companies/products until it goes through a drastic restructuring and finds a lower cost business model..Until the Intel is SOL..

    You should know better than just trying to pump up Intel when Intel is at a dangerous losing business crossroads...

    I would get rid of any Intel stocks since Intel just stands to lose its market.. shrinkking business... while many other 64 bit ARM companies will be gaining business.. growing. business.. You need to understand, first, why ARM stole the laptop business from Intel.. and why the Intel failed to be a key player on tablets.. and why lower profit margin chips just kills Intel profits and sinks it every time deeper..

  • Report this Comment On January 02, 2014, at 10:21 PM, mtechac wrote:

    About AMD.. AMD is a complete win-win situation at its current bottom barrel stock price.. You can't lose money because there is only one way up now.. AMD has its business model and its technology in line now and it just looks great..!!

    Potential easy AMD profits in the next 2 years is %400.. based on AMDs normal stock values and based on AMDs current technologies being released.. easy..

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