Investors Should Take Little Comfort in Intel’s Mobile Push
Intel’s (NASDAQ:INTC) current market price suggests that the stock is trading at its highest levels in the past three years. The company has continuously released record earnings putting doubts to rest that it may suffer as tablets and smartphones get more popular. Continuing with these efforts, the company’s management stated that investors should be more assured now as the company is trying to push into the mobile market. [1]
During CES 2012, Intel demonstrated its new Medfield chip for the mobile market that is currently dominated by companies such as Qualcomm (NASDAQ:QCOM) and Texas Instruments (NYSE:TXN). Motorola Mobility and Lenovo have already signed deals with Intel to adopt its Medfield chip for their smartphones. Motorola’s Intel-powered smartphone will use Google’s (NASDAQ:GOOG) Android 4.0 mobile operating system.
Our price estimate for Intel stands at $30.52, implying a premium of about 15% to the market price.
- Down 29% This Year, What Lies Ahead For Intel Stock Following Q1 Earnings?
- Will Intel Stock Return To Pre-Inflation Shock Highs Of $68?
- Gaining 50% Over The Last 12 Months, Will Intel Stock Rally Further After Q4 Results?
- Will Intel Stock Recover To Pre-Inflation Shock Highs?
- Up 44% This Year And With Foundry Plans Taking Shape, Will Intel Stock See Further Gains?
- What To Expect From Intel’s Q3 Results?
See our complete analysis for Intel
Unlike PCs, smartphones have traditionally sold more on their user-interface and software rather than hardware driving performance. Therefore striking a business partnership is quite vital for Intel as companies such as Motorola can definitely sell the phones to consumers because of widespread adoption of the Android operating system, and in this way, Intel can quietly slip into the mobile market. But it will need to keep innovating as companies such as Nvidia (NASDAQ:NVDA) are already leaping ahead with quad-core mobile processing power.
Looking at the numbers, it appears that the mobile market is not really the reason why investors should breath easy. The revenue per unit is much lower compared to traditional PCs and servers, and Intel’s 80% dominance does not exist in mobile like it does in the PC business.
We estimate that even in a highly optimistic scenario where Intel gains 25% share of the mobile computing market and Atom’s margins rise to 40%, this business will constitute only 8% to Intel’s value and lead to just 7% upside to its stock.
Instead, the question that investors should continuously ask is how will Intel save its PC business?
How is it going to defend itself against potential market share losses in the future from ARM-based players?
How will the company innovate notebooks & desktops so that they do not get replaced by tablets?
How will the company fight price competition? Ultra-books are one step in this direction.
What do you think?
Understand How a Company’s Products Impact its Stock Price at Trefis
Notes:- Intel CFO faces fewer worried investors, Reuters, Feb 2 2012 [↩]