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The Other Intel: Investors Ignore the Good

Stocks in this article: INTC

NEW YORK ( TheStreet) -- With a stock trading at $25 and a price-to-earnings ratio of 9 -- unfitting for a tech giant -- I'm beginning to realize that when it comes to chip-giant Intel (INTC), Wall Street is dealing with a severe case of selective amnesia.

When looking at its peers such as Qualcomm (QCOM) and ARM Holdings (ARMH), the case to be made is that either Intel is harshly undervalued, or its rivals including Texas Instruments (TXN) and Nvidia (NVDA) are trading at inflated valuations -- it can't be both. This is precisely the question that astute investors should be asking following the company's recent second-quarter earnings report.

The Quarter That Was

For the quarter, Intel generated net income of $2.83 billion, or 54 cents per share, on revenues of $13.5 billion -- topping analysts' EPS expectations while meeting its sales forecasts. What I found to be interesting was that the company said that PC shipments arrived at 87.5 million units for the quarter -- representing a 0.1% decline from the previous year.

What was also derived from the report was the company's sequential revenue growth, which arrived at 5%, while its PC revenue rose at a respectable 4%. So essentially, the rumored death of the PC has not arrived as drastically as previously anticipated. Intel is an excellent indicator of PC growth because not only are 80% of the world's PCs using its chips, but its biggest customers are the top two PC manufactures in the world, Hewlett-Packard (HPQ) and Dell (DELL).

So should this inspire some optimism for investors of the latter two companies? Perhaps, but it does not remove the impact of the growing tablet and mobile devices market -- which is now dominated by Apple (AAPL) and Google (GOOG) and their suppliers in Qualcomm and ARM. That said, Intel's gross margin arrived strong and showed no signs that it has been impacted by the market shift.

Even more remarkable was that the company showed no meaningful slowdown due to the economic challenges in Europe whereas rival Advanced Micro Devices (AMD) absorbed not only a significant drop of 10% in revenue, but also a 40% decline in profits due to poor European sales. So with these poor numbers from AMD, I think Intel took the right approach and eased guidance.

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