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Why Intel Stock Popped 5% This Morning

By Rich Smith – Updated Apr 18, 2019 at 6:52AM

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Intel's losing Apple's business to Qualcomm -- and that's a good thing?

What happened

Yesterday was all about Qualcomm (QCOM -0.61%), and its surprise settlement with Apple (AAPL 2.44%) that will yield years' worth of chipset sales, a passel of patent licensing fees, and usher in a new global alliance in smartphones.

And yes, today was kind of a lot about Qualcomm, too -- but it was also about Intel (INTC 0.43%), and Intel's decision to exit the market for cellphone modems capable of facilitating 5G internet service. Intel announced this move shortly after Qualcomm and Apple laid down their swords, and at first glance Intel's announcement seems like bad news. Multiple analysts, however, say today that in their view at least, Intel is making the right move here.

As a result, Intel stock closed Wednesday up 3.3%, after rising 5.1% earlier in the day.

Computer chip

Image source: Getty Images.

So what

So who are these analysts, and what are they saying? According to reports by today, KeyBanc is one of Intel's fans, and KeyBanc was never a big fan of Intel getting into 5G cellphone modems. This is a low-margin business that Intel is exiting, says KeyBanc, and it made "little strategic sense" for Intel to get into it in the first place. Plus, Intel was behind schedule in developing 5G modems, and probably would have lost out to Qualcomm in any case.

Thus, Intel made the right call in cutting bait and abandoning 5G.

Wells Fargo seconded that view, calling Intel's exit a "positive" for the stock.

Now what

Intel CEO Bob Swan summed up his decision as follows: "We are very excited about the opportunity in 5G and the 'cloudification' of the network, but in the smartphone modem business it has become apparent that there is no clear path to profitability and positive returns."

Intel's early decision to gracefully concede the 5G smartphone modem market to Qualcomm offers the best chance of Intel avoiding negative returns that threatened to continue pressuring its gross margins (already below 61%), and to reverse the positive momentum Intel has enjoyed in operating and net margins these past two years. As such, it's a decision Intel shareholders should applaud.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool owns shares of Qualcomm and has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.

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