Can You Still Buy Intel?

Chip giant Intel (Nasdaq: INTC) has come a long way since the meteoric rise of computers in the '90s, which the company happily rode into the stratosphere along with the rest of the tech bubble.

Intel Corporation Stock Chart by YCharts

Over the past 10 years, its longtime Wintel partner in crime, Microsoft (Nasdaq: MSFT), has stagnated. Unfortunately for Intel investors, the past decade has been even worse in total return.

Intel Corporation Total Return Price Chart by YCharts

The company remains the leader in high-performance PC processors, but it faces some headwinds within the sweeping mobile revolution. Is Intel a buy, sell, or hold?

Buy:

• Leadership: According to recent figures from market researcher IHS iSuppli, Intel's market share of global microprocessors in the third quarter stood at a dominating 83.7%, up from 80.9% last year. Smaller rival Advanced Micro Devices (NYSE: AMD) saw its share shrink from 11.5% to 10.2% over the same period. The explosion of tablets has been a double-edged sword. Intel's Atom lineup is tanking in lockstep with netbooks, but the mobile push has spurred demand for Intel chips in data centers powering the cloud. Intel's leadership in microprocessors should continue to expand in the near future, despite the recent guidance slash.

• Cloud: As processing continues to migrate skyward, Intel chips continue to power the data centers in the cloud that are facilitating the mobile revolution. iSuppli predicts that consumer and enterprise spending on the cloud will jump from $23 billion in 2010 to $110 billion in 2015 -- a nearly fivefold increase in five years. ARM Holdings (Nasdaq: ARMH)-based chips are starting to infiltrate the enterprise-server market, but for now Intel retains its iron grip on the space.

• Technology: As the largest chipmaker in the world, Intel leads the technological front when it comes to performance. As many chip companies are transitioning to fabless or fab-lite models, Intel retains its chip foundries. Maintaining chip plants is very capital-intensive, but that integration also allows Intel to push the limits with its technology. Intel's new Ivy Bridge chips are due out in April and use 22-nanometer architecture, making them about 30% smaller while boosting performance by 37% compared with current 32-nanometer Sandy Bridge processors. Intel far outspends rivals in R&D. Just last quarter, it spent over $2.1 billion in R&D, compared with AMD's $361 million and NVIDIA's (Nasdaq: NVDA) $256 million.

Sell:

• Mobile: Years ago, when mobile meant netbooks, Intel's Atom lineup was a hit. With global netbook shipments expected to plunge 58% from 32 million in 2010 to 13.4 million in 2015, it wasn't a shocker when Intel said its third-quarter Atom revenue dropped 32% year over year. Intel missed the mobile market, and now smartphones and tablets are primarily powered by ARM chips, like those from NVIDIA and Qualcomm (Nasdaq: QCOM). At long last, Intel is just now about to go mobile with its Medfield Atom chips. Try as it may, Intel will have to accept defeat in mobile, as ARM holds a 95% mobile market share.

Hold:

• WinARM: Old buddy Microsoft made Intel's worst nightmares come true. The Redmond giant has opened up Windows 8 to ARM architecture. WinARM is gathering forces, with laptop makers pairing with NVIDIA and Qualcomm to launch computers as early as late 2012. NVIDIA in particular is excited about WinARM, in line with its recent mobile mindset and chipsets. Intel still holds the lead in traditional PCs, but the stage is being set for a glorious battle between Intel and the ARMed forces. We'll have to wait to see who wins this war.

• Maturity: The PC market has matured a lot since the '90s, and that growth is gone for good. There will always be growth, but not like in the early days of widespread consumer PC adoption. Enterprise upgrade cycles will happen every few years, as will consumer upgrades, but it pales in comparison with the breakneck growth Intel saw in its glory days. IDC expects 2012 worldwide PC shipments to grow by 9.3%, accelerating from the 2.8% this year should put up. Compare that with the '90s, when growth in the mid- to upper teens was common, even sometimes considered slow compared with the 23% and 25% growth seen in 1994 and 1995, respectively.

The verdict
This one is a mixed bag. As a growth investor, I would never buy shares since Intel's growth days are in the rearview mirror. It will still continue to grow modestly, but the stock has matured into a value investment at this point. I would hold shares if I already owned them, even though Intel will probably never make it in mobile. Missing out on mobile alone doesn't justify selling, though, since Intel has plenty of other things going for it.

From a value investor's perspective, Intel is a buy. It's an industry leader and even pays a healthy dividend yield around 3.4%. Free cash flow rose by 73% last year, and shares trade at 10.6 times earnings, which is less than its peers.

It just depends on what you're looking for.

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