Intel Must Play Catch-Up Now

NEW YORK (TheStreet) -- It's been a nice ride for investors of Intel (INTC) who bought shares in late February after they'd fallen from above $23 in mid-January to nearly $20.

That 13% decline, in retrospect, was a terrific buying opportunity. Since late February shares rose to Tuesday's intraday high of $25.98, which equates to a nearly 30% gain if you were fortunate enough to have purchased it at $20.10.

The most recent stock-price-boosting hype surrounds Intel's newest mobile chips. Public announcements at the Computex conference in Taiwan that Samsung will use Intel's processors to power a version of its Android tables lifted shares almost 8% from the mid-day low last Friday.

Now it's time for cooler heads to prevail and to reconnect to the here and now. Having recently read a revealing cover story in the Sunday business section of The Oregonian newspaper with the catchy title "Intel's Choreographer" I realize the INTC exuberance has gotten a little ahead of itself.

The article revolved around an interview with Rani Borkar, the multi-talented vice president and general manager of Intel's Architecture Development Group. Up to the exciting news that Samsung will use Intel's 1.6-gigahertz dual-core processor in its 10.1-inch Galaxy Tab 3 tablet beginning next month, INTC had almost no presence in either the tablet or smartphone markets.

With the PC and laptop markets waning, INTC has been putting the pedal to the metal to play catch-up in creating competitive microprocessors that can compete with Apple's ( APPL) preferred microprocessor company ARM Holdings ( ARMH). The problem is that INTC is still far behind in this semiconductor race.

"What I told people is we've got to run fast," Borkar told the newspaper concerning Intel's daunting challenge. "If one shoe is missing, don't wait. We have got to run fast. We will figure that out as we go."

This tells investors about two important factors regarding INTC: It's been awakened and knows it has a do-or-die mission it must complete quickly, and it's flying by the seat of its pants and running a race even "if one shoe is missing."

ARM is well-established as a go-to provider for manufacturers of Android smartphones and Tablets. What motive would those manufacturers have for switching to Intel's new processors, the first one, perhaps named after an old friend and colleague of mine is simply called "Haswell?"

The Haswell I knew couldn't run fast but he could hold his own in any investment contest and he was a champion in my book when it came to retaining clients and customer loyalty. Perhaps Intel (which does rhyme nicely with Haswell) is hoping that just its name might be a powerful client magnet.

Last month Intel introduced another microprocessor with the code name "Silvermont." It has received mostly positive reviews so far and, like Haswell, it has both analysts and investors relatively optimistic.

This was reflected in a quote in the newspaper article I referenced. "It the introduction of Silvermont and Haswell is a pretty big deal because it's pretty much a start from scratch redo," said Kevin Kreswell, a senior analyst at The Linley Group in California, which reportedly has both INTC and its competitors as clients.

"They INTC were really so far behind on (mobile) they really had to do both" the Silvermont and Haswell processors, Kreswell opined. "Kind of a risk, but so far there are no indications there are problems with it."

If INTC can't find a way to make its processors competitively priced and at least as fast, why would ARM customers who manufacture smartphones and tablets want to switch? Borkar didn't comment one way or another except she and the company knows INTC's challenges and disadvantages.

Now it's time for investors to look at the one-year chart below and ask themselves, "How much real upside does INTC shares have after the latest meteoric price move?" In the chart I've added the trailing twelve month revenue per share and the impressive 17.44% return on invested capital for INTC.

INTC Chart INTC data by YCharts

For another perspective I'd encourage you to read Dana Blankenhorn's article, which sheds light on some other considerations.

This is one of those critical moments in the corporate history of Intel. The company has made it clear that it has a strategy and a clear vision for how it can begin to capture at least a part of the mobile market.

The question isn't whether it has the skill sets and capabilities needed to eventually succeed. The question is has INTC waited too long to get into this technologically essential "race" and can it win if it started the race with only one running shoe on?

Meantime, the fundamentals look good for INTC and its current dividend yield-to-price of 3.55%. That represents a rather high payout ratio approaching 50%. It may be prudent if you're waiting to buy or add to your position to let this "runner" cool off a bit before the stock is ready to sprint much higher.

At the time of publication the author was long AAPL.

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

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