Intel Corporation (NASDAQ: INTC ) is the world's largest vendor of processors for personal computers and servers. While that's great, what's really notable about the Intel story is that despite being the world's largest vendor of chips, it has virtually no presence in smartphones and a limited (but growing) presence in the tablet market.
This lack of a mobile presence hasn't stopped Intel's stock -- fueled by recent strength in the PC market and immense success in the server market -- from being a strong performer in 2014, returning 25.6% year to date against a Nasdaq up just 4.65% and a Dow Jones Industrial Average down 0.14%.
However, despite a massive run, here are three reasons Intel stock could continue higher over the long-haul.
Mobile losses today mean lots of operating leverage tomorrow
In Intel's most recent quarter, the company generated $3.8 billion in operating income and $2.8 billion in net income. This is despite a $1.1 billion operating loss attributable to its Mobile and Communications Group (thanks to heavy investments in future chip technologies).
This investment level is very high today against a revenue base that's nearly nonexistent, as the Mobile and Communications Group did just $51 million in sales last quarter, but those losses are poised to narrow as Intel grows mobile revenue with the rollout of more competitive mobile products.
With a $4 billion-plus annualized operating loss in this division eventually brought to breakeven or better, Intel could see a massive boost in operating and net income as this business grows into its cost structure.
PC business could continue to be robust
One of the big fears surrounding Intel's recent performance is that the uptick in PCs may be temporary. It is no doubt true that Microsoft's ending Windows XP support has led many businesses to pull the trigger on upgrading their PCs.
Indeed, what makes this even more worrisome is that while business PCs are strong during this upgrade cycle, consumer PC sales continue to be weak in many key regions. If Intel can find a way to shift wallet-share back to PCs -- and it can potentially do this with stronger lower-cost PC chip offerings -- then PC sales could return to reliable, if somewhat slow, growth over the long term.
With about 63% of Intel's revenues coming from the PC market, even slow and steady long-term revenue growth from this business could mean big things for Intel's bottom line (and its stock price).
Big buyback ready to scoop up shares
Intel also announced on its most recent earnings call that the company's board of directors authorized a $20 billion buyback program -- good for about 12% of the company's shares outstanding. Though some of the buyback will be used to offset dilution from share-based compensation, the majority of this buyback is likely to go toward shrinking the company's share count, which will improve earnings per share for a given level of net income.
Foolish bottom line
To see a significantly higher share price, Intel needs to not only execute in mobile, but it needs to also find a way to drive increased demand in its core PC business. If it can do those things, though, then the significant increase in net income would result in much higher earnings per share, ultimately paving the way to a much higher share price.
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