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2014 Is Intel's Year

By Joseph Gacinga – Feb 26, 2014 at 3:00AM

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Intel has been slated as having the best prospects of grabbing LTE Baseband mobile chipset market share from Qualcomm, ahead of rivals NVIDIA, MediaTech and Broadcom.

For many long-suffering Intel (INTC 4.05%) investors tired of waiting for that turning point that never seems to come, news that 2014 will finally be Intel's year may sound like a well-worn cliche in their jaded ears. After all, Intel shares badly lagged the NASDAQ Composite in 2013 and have the highest short ratios of any company listed in the Dow Jones Industrial Average. Its revenue growth also hasn't been as impressive as its peers Broadcom (NASDAQ: BRCM) and Qualcomm (QCOM 7.53%).

Intel stole the show at this year's Consumer Electronics Show with several novel products including a smart bowl that can wirelessly charge a phone, a smart onesie that monitors a baby's vital signs, and "Jarvis," a smart Bluetooth earpiece that functions much like iPhone's Siri. Intel also recently unveiled "Edison," a Pentium-class computer that's the size of an SD card, complete with both Bluetooth and WiFi connectivity.

Although these novel products are unlikely to have a big impact on Intel's top and bottom lines, they prove that Intel still has the wherewithal to create cutting-edge products. Meanwhile, the company's other businesses are showing promise.

Intel most likely to grab market share from Qualcomm
Giant chipmaker Qualcomm remains the clear market leader in the cellular baseband market, LTE chips in particular. Other large chipmakers such as Intel, Broadcom, NVIDIA (NVDA 8.24%), MediaTech, and Spreadtrum are busy playing catch-up to Qualcomm, and are intent on closing the huge gap. According to Strategy Analytics, Qualcomm holds a strong lead in the cellular broadband processor market with 66% revenue share, MediaTek comes in second with 12%, and Intel is third with 7% share.

The good news, however, is that several analysts, such as MKM Partners, predict that Intel has the best prospects of grabbing LTE baseband market share from Qualcomm in 2014, ahead of NVIDIA or Broadcom. A lot of growth in 3G and 4G wireless services that use baseband chips is expected to come from building out 4G LTE wireless networks in China, mostly by China Mobile.

Bay Trail platform to help Intel gain tablet share
Intel's Bay Trail platform is based on the company's biggest advances in chip architecture, Silvermont. Bay Trail is Intel's first quad-core Atom System-on-Chip, or SoC. Intel intends to use Bay Trail to extend its product line across multiple screen sizes and price points in both tablets and low-cost PCs.

Intel recently launched its fourth-generation core processor family, code-named Haswell. This processor is designed for higher-end PCs and offers improved performance, robust graphics, and 13-hour battery life. The processor can be used in newer designs, including multiple form factors such as 2-in-1 convertibles and a wide range of touch-enabled devices.

For smartphones, Intel intends to use its Merrified processor platform that is based on its legacy Silvermont platform. Intel recently moved a notch up from manufacturing single-mode 4G LTE data solutions to multi-mode voice and data LTE baseband solutions.

Robust growth in data center
Intel's data center has been doing very well, backed by strong global growth in cloud, storage, and high performance computing businesses. The company launched Ivy Bridge products aimed at Xeon cloud servers, as well as Atom-based Avoton SoCs aimed at the micro-server segment. Although the sluggish recovery rate among corporate clients slowed growth in Intel's enterprise segment last quarter, the company expects the segment to record a healthy 10% growth in fiscal 2014.

PC sales close to bottoming out
PC sales for all major vendors have taken a nosedive in recent years. There has been a lot of talk about the death of the PC, and that of PC makers such as Intel. While nobody can dispute the greatness of tablets as consumption devices, the truth is that most individuals and businesses still rely heavily on the better performance capabilities of PCs. Recent PC sales trends from Intel and other large PC makers offer strong evidence that PC sales are close to hitting a bottom, after which they will likely hold steady. NVIDIA is also experiencing a similar trend.

Reversal in revenue and profit decline
Intel has experienced a decline in profits, largely due to a huge increase in R&D spending, which is up by almost $4 billion since 2010. Its revenue declines have started leveling off, and the company recorded its first year-over-year increase in revenue as the PC sales decline was countered by robust growth in its $11-billion-per-year data center business (Intel derives 20% of its revenue from this segment).

Fairly priced shares
Intel shares remain fairly valued based on the company's strong free cash flow, second to Apple's among the tech giants. Its shares also sport a 3.5% dividend yield, the highest for large tech stocks.

Despite healthy cash flow, Intel's shares sport a forward P/E ratio comparable to its peers'.

Intel shares look poised for a break-out in 2014 as the company executes on multiple fronts such as the all-important smartphone market, cutting-edge processors for low-end and high-end PCs, and a laser focus on the tablet market. The decline in PC sales is showing signs of having hit a bottom, and Intel should see better revenue predictability for the segment in the future. Hold Intel shares.

Joseph Gacinga has no position in any stocks mentioned. The Motley Fool recommends Nvidia. The Motley Fool owns shares of Qualcomm. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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