Intel (Nasdaq: INTC) held an analyst meeting in Silicon Valley on Tuesday. The timing was unfortunate, as earlier that morning Hewlett-Packard (NYSE: HPQ) had cited consumer PC weakness in guiding fiscal 2011 earnings down.

The good news: Intel's meeting was well attended -- which shows institutional investors are still interested in the company -- and Intel stated that the current quarter is on track, helped by demand in emerging markets. Also, Dell's (Nasdaq: DELL) strong earnings report on Tuesday evening did seem to help Intel's stock on Wednesday.

But beyond noting the current quarter was on track, the meeting didn't seem to do much for the stock. Management worked hard to persuade investors that Intel is riding the mobile wave. Still, at the end of the day, Intel traded at a modest 11.1 times P/E ratio with a generous dividend yield that exceeds 3%.

All about mobile
Intel's two-fold pitch was aimed at addressing the bears' argument that Intel is an also-ran in mobile technology… and mobile is where the action is. The pitch:

  1. Intel makes more money selling chips for mobile infrastructure than any "silicon vendor" makes selling products for mobile devices.
  2. The company introduced an aggressive product roadmap for the company's Atom mobile device system-on-a-chip.

A mobile infrastructure play
Mobile devices do need infrastructure -- servers, storage and networking -- to access and store information. (So do web-surfing PCs, for that matter.) The chips that power the infrastructure command above-average prices and margins.  According to Intel, one server is required for roughly every 600 smartphones or every 122 tablets.  Intel expects demand for mobile infrastructure to fuel revenue growth of 15% annualized for its Data Center Group through 2015 with an operating margin of about 50%. (Intel's overall operating margin climbed from 17.5% in 2006 to 35.3% over the last four quarters.)

Good point, but near-term revenue and EPS growth expectations for Intel pale in comparison to forecasts for mobile processor players ARM Holdings (Nasdaq: ARMH) and Qualcomm (Nasdaq: QCOM). (See table.) To be fair, Texas Instruments (NYSE: TXN) also plays in that arena and its revenue and EPS growth are expected to be below Intel's.


FY11 Revenue Growth Expectations

FY11 EPS Growth Expectations

Intel (FY ends Dec. 2011) 21% 10%
ARM Holdings (FY ends Dec. 2011) 14% 50%
Qualcomm  (FY ends Sept. 2011) 31% 27%
Texas Instruments (FY ends Dec. 2011) 3% 0%

Source: Capital IQ, a division of Standard & Poor’s.

Forecasts for Intel reflect its PC Client Group, which accounts for 72% of revenue and 85% of operating profit. The Data Center Group accounts for 20% of revenue and 28% of operating profit. (Losses in other groups sum operating profit to 100%.) With the PC Client Group driving about three times as much operating profit as the Data Center Group, it acts as a big drag on the mobile infrastructure play. What's more, Intel seems to expect the mobile infrastructure growth to accelerate over the next few years -- suggesting its near-term growth will be below 15%.

A mobile device play?
On the mobile processor front, Intel put up a roadmap that has Atom lagging PC and server processor technology by one year, a big improvement from its traditional two-year lag.  The optimist would say the more aggressive schedule could help Intel gain mobile share. The pessimist would say it shows Intel is feeling the heat but the company has long been challenged to replicate its success in PCs and servers.

New design rules are targeting lower power consumption for both Atom and notebook processers. Power consumption is a key factor in winning mobile designs and improvements on that front could prove decisive. In addition, management believes Intel's recently announced 3-D transistor technology and leadership in semiconductor manufacturing will help the company succeed in the mobile processors.

Intel has said that input from mobile device pacesetter Apple (Nasdaq: AAPL) "helps shape our roadmap." Apple transitioned its Macintosh computers to Intel processers in 2006 but licenses technology from ARM Holdings for the custom processors it designs for the iPhone and iPad. It's not clear if Apple's input to Intel goes beyond its Mac line.

Foolish takeaway
Muted near-term expectations are reflected in Intel's modest P/E ratio of 11 times and generous forward yield of 3.7%. The stock seems attractively valued for estimated EPS growth of 10% in 2011.

Looking further out, analysts are forecasting EPS will grow at an annualized rate of 20% over the next three to five years. Intel's efforts in mobile infrastructure and processers could make that happen. If Intel hits that forecast, patient investors who take advantage of current weakness in the stock could be well rewarded.

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