Brendan Byrnes: Hey Fools, I'm Brendan Byrnes, joined by Andrew Tonner, our tech and telecom analyst for Fool.com.
We'll take a look at Intel, one of the bigger companies in your sector. Maybe a little bit of a skeptical look; digging a little bit deeper on Intel, what did you find?
Andrew Tonner: I think it's interesting to note that people certainly talk about the bullish thesis for Intel. They say, "Intel has this R&D prowess, and their fabrication prowess," which truly are second to none on both accounts. It could be kind of a saving grace for the company, but I think that misses some of the dynamics that the markets are trying to move into.
Obviously, we know one of the big cases against buying Intel is that they have no play in the booming semiconductor space for tablets and smartphones. That's the ground where ARM Holdings and its chipset licensees, the Qualcomms and NVIDIAs of the world, truly dominate.
Intel wants to break into that -- that's where the growth is -- but at the same time people don't realize that there's still a built-in revenue cliff when you look at the dynamics of this market. It would take around four mobile chip sales to generate the equivalent revenue of one CPU microprocessor for Intel.
Even if they were, in theory, to gain traction in that space, they're probably not going to have the same modernization or the same revenue sustainability as they have in their current market for computer CPUs.
There's also the built-in play. People say, "Well, maybe mobile's not great, but then there's this cloud back-end that Intel could tap into." I think when people look at these markets, they're missing some of the rough math on how revenue will script out for the company.
They're both true; they have the best fabrication in the world, and that could be a huge win for them. People talk about Intel moving over to 14-nanometer by 2014, basically out-manufacturing the rest of the competition -- people like Taiwan Semiconductor, who might not be able to ramp as fast as Intel -- but at the same time even if they break into these markets, which is a huge uncertainty to begin with, it might not have the end business result that investors think it will.
You look at Intel as a company. People say, "It's priced for negative growth," but at the same time I think some of that skepticism is very, very justified, too. You see a dwindling, maybe stagnant, PC market. Yeah, you'll have some growth from servers as well, but at the same time the math might not hold up, or if they spend to get into these fields it might not be as lucrative for them as some investors might think.
Intel's a value play, but at the same time I don't know if it's going to be the kind of story you see rebound especially quickly.
Brendan: All right. Definitely looking cheap based on the multiple, but certainly there are some reasons why, at least for Intel.
Andrew: Exactly. Some investigation.
Brendan: Thank you, Andrew. Make sure you head over to Fool.com for more analysis.
