Intel: Can an Old Chip Fit In on a New Block?

NEW YORK (TheStreet) -- In the minds of many investors, chip giant Intel (INTC) is considered a former highflyer, at least by today's standards.

On Wall Street, the company finds itself on the "semiconductor B-list" when it comes to media coverage. As it stands, Intel is now in the painful position looking up to the "new chips on the block": Qualcomm ( QCOM), Nvidia ( NVDA) and ARM Holdings ( ARMH). Fairly or unfairly, that's its reality. But that does not mean that's where it intends to stay.

Down But Not Out

Intel's dominance was closely tied to the rise of the PC, and it soared to whatever heights Microsoft's ( MSFT) growth would take it. But that was then. In fact, not only has Microsoft languished lately, but so has Intel's once-reliant PC partners Hewlett-Packard ( HPQ) and Dell ( DELL). It's a new world and, like its partners, Intel is finding it difficult to fit in.

But it is not the first company to experience a midlife crisis.

As with many others before it and most recently Apple ( AAPL) and IBM ( IBM), Intel's challenge is to demonstrate that it is still relevant and offering products and services that appeal to consumers and businesses. To that end, its management has begun to address this issue in a big way by investing heavily in R&D. Investors would do extremely well to take notice and not underestimate this proud giant. Though down, it is certainly not out.


In its efforts to reinvigorate the brand, the company is due to launch one of its biggest marketing campaigns in its history -- one topping its 2003 campaign, which was arguably one of the best in history. However, this time, the company has solicited help from an old partner, HP, to promote the highly anticipated launch of its line of UltraBooks, aimed at Apple's popular MacBook series.

What's more, it should come as no coincidence that Intel's other partner, Microsoft, will release its Windows 8 operating system and its Surface tablet during that same time. It seems all three companies will reunite and band together to try to relive their former highflying days of the 90s, when PCs dominated not only homes and businesses, but also Wall Street.

Chip On Its Shoulder

As much optimism as its upcoming launches may generate, investors need to realize that Intel's efforts and competitive juices don't end there. The company has been operating with a proverbial "chip on its shoulder." For example, over the past several quarters Intel has been reinvesting heavily in its business as well as in its R&D core capabilities, such as security and extending its process technology leadership.

The latter initiative is one of the areas that should extremely excite investors about Intel's future prospects. It will place the company at a significant advantage to the extent that the company is able to leverage its current core products and services beyond what it is traditionally known for and into areas that consumers can only imagine. ARM and Qualcomm can't say that. For that matter, neither can Texas Instruments ( TXN).

So as Wall Street continues to marvel at what Intel's rivals are doing, analysts continue to make the mistake of thinking that Intel has ceased to innovate. Conversely, it is abundantly clear that the company intends to maintain its dominance among semiconductors and has only begun to lay down the foundation for its long-term success.


Chips are the wave of the future, or are certainly going to be a significant part of it. After all, it is hard to envision a future without the need for faster processing speeds; it is even harder to picture a scenario where Intel is not at the center of meeting this demand. It seems as if the company is being disrespected for doing nothing other than being consistent. Essentially, it has become the victim of its own success. But investors should feel excited that its next couple of years will be anything but routine.

Bottom Line

As Intel's stock continues to trade at a discount with a price-to-earnings ratio of 9, I see at least 25% more upside in the shares in the near term, putting the stock at $32 and possibly $35 by year's end. Furthermore, the company will undoubtedly log its best financial performance in 2012. Investors should expect Intel to demonstrate continued strength in emerging markets, from the explosion of smartphones and mobile devices and from corporate and consumer migrations towards cloud infrastructures.

If you are a value investor looking for a safe investment in technology and one that pays a respectable dividend, you should consider Intel.

At the time of publication, the author was long AAPL and held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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