3 Ways Intel Gets To $37

This year is going to be an interesting year for Intel (NASDAQ:INTC) as AMD (NYSE:AMD) looks determined to make a move, ARM-based players are about to enter the market, speculation regarding the decline of PCs increasing as Apple’s (NASDAQ:AAPL) iPad and other tablet sales expand, and Intel pushing for ultrabooks for future survival. Here we take a look at an optimistic scenario for Intel that can take its stock to as high as $37.

See our complete analysis for Intel

1) Ultrabooks Revive Notebook Growth

The sales of Ultrabooks powered by Intel’s microprocessors were not impressive during the last holiday season. However, that could have been due to limited visibility and marketing as well as high prices. Over time, there is possibility that price of utrabooks will come down as the prices of its internal components decline. Furthermore, the 3D tri-gate technology with 22nm Ivy Bridge processor may serve as the technical advancement necessary to lure customers.

The tri-gate transistor technology allows for lower leakage current and higher active current. This improves the performance of the transistor leading to higher performance and lower power consumption. Power consumption is going to be an essential component of future computing devices and something on which Intel will closely focus.

If the above comes true, it can not only help Intel in maintaining its current market share in notebooks, but also help sustain healthy growth in worldwide notebook shipments. In this scenario, we assume that Intel’s motivation and push into ultrabooks will make it extremely difficult for ARM-based players to make a breakthrough.

The notebook shipment growth for the past few years has averaged at around 13% per year. If we assume that Intel, via ultrabook advancements, can help sustain an average growth of 8% for this market over the course of next several years, the total notebook shipments can reach a figure of 300 million by the end of our forecast period. Furthermore, if Intel is the primary reason why notebooks will grow, it is quite likely that it will be able to sustain its current 84% market share and perhaps even expand it. These two factors can push our current price estimate up by more than 10%.

2) Intel’s Atom Makes A Breakthrough

Intel is starting to make some strides in the tablet market with its Atom processors. This year and beyond, we are likely to see Intel’s Atom getting into more smartphones and tablets as the company works out the issues of power consumption. Furthermore, its Valley View Atom processor is aimed at improving sales of netbooks, although we believe there is very limited growth opportunity there. If Intel’s Atom can gain a share of 20% by the end of our forecast period and consequently, the EBITDA margin improves to 35% by leveraging a higher sales base, it can add another 5% to our price estimate.

3) Server Market Doubles

Intel expects server market to double in next 5 years. Even if we assume a more moderate case of server microprocessor market doubling by the end of our forecast period of around 6 years, it can add additional 10% upside to our price estimate.

Together, the above scenarios can push Intel’s price past $37.

Our price estimate for Intel stands at $30.52, implying a premium of roughly 8% to the market price.

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