Intel’s Headed For $31 On Ultrabooks, Smartphones & Tablets Growth

INTC: Intel logo

For over 20 years Intel (NASDAQ:INTC) has been reigning in the PC microprocessor market. Even amid the global PC slowdown last year, the company not only retained its dominance but also managed to register a slight increase in its overall market share. However, the initial launch of Intel powered ultrabooks last year failed to garner the expected response, which combined with its absence from semiconductor industry’s fastest growing division of smartphones and tablets, questioned Intel’s capability to retain its dominance for long.

This year has turned out be an eventful year for Intel so far, with its much awaited entry in the lucrative smartphone and tablet market and an increase in the number of ultrabooks powered by Intel’s Atom processors. Here, we analyze the company’s eminence in these two divisions, which contribute close to 36% to our current price estimate $31. Though, the stock has gained around 24% value in the past year, we feel it still remains undervalued.

See our complete analysis for Intel

Touch Enabled Ultrabooks In The Near Future To Boost Notebook Shipments

Within the next one month, Intel will have a total of 35 ultrabooks powered by a range of third generation Intel core processors. Apart from higher responsiveness and enhanced security features, the company claims that its new third generation core processors provide up to two times the graphic performance and a longer battery life compared to its older version. Including the recent announcement of Apple’s next generation MacBook Pro powered by Intel’s Ivy Bridge processors, the company has around 110 designs in its pipeline that are expected to be launched by next year.

With ultrabooks having overtaken the growth in desktop a while back, we expect the trend to continue for the rest of our forecast period. Providing consumers with the convenience and flexibility to move, notebooks are increasingly gaining popularity amongst users. We estimate global notebook shipments to reach the 250 million units mark by the end of our forecast period.

With an increasing buzz about the touch-enabled ultrabooks in the near future, Intel looks determined to take its processing power a notch higher. At the recently held Computex 2012, the company announced that it has signed several agreements with some leading touch paneled manufacturers to adequately cater to the expected demand for touch-enabled notebooks over the next several years. [1]

Potential Risks

While there are many factors that might work against Intel in this segment – Entry of ARM based players, AMD (NYSE:AMD) leveraging on growth from emerging economies with its lower-prices processors and threats of possible cannibalization from tablets, we remain confident on Intel’s ability to overcome these obstacles and remain the market leader, with an estimated market share of around 77% by the end of our forecast period.

Entry in The Smartphones & Tablets Market

Intel marked its entry in the coveted smartphone and tablet market in April this year, with the launch of first Intel architecture phone by Lava International. (See Our Article: Intel Dials Up $31 With Smartphone Push And Intl. Growth) The company continued the pace with the subsequent launch of two more Intel powered smartphones last month – Lenovo LePhone 800 and Android smartphone code-named “San Diego”. (See Our Article: Intel Launches Lenovo & Orange Smartphones To Seize Mobile Opportunity)

While ARM Holdings (LSE:ARM.L) claims not to be threatened by Intel’s entry in this arena, the fact that over 20 Intel powered tablets are in the works, should be a cause of concern for the ARM based tablets. Additionally, the company announced during Computex 2012 that almost all of its Atom-based systems – tablets or notebooks – will be Windows 8 compatible.

We estimate Intel’s revenues from this division to almost triple and the market share to reach around 9%, by the end of our forecast period. Apart from the exponential growth in smartphones and tablets, we feel that other new Atom based devices such as Google TV, car infotainment systems, home and business energy management systems will improve Intel’s Atom processors  share by increasing its available market.

Potential Risks

In the smartphone division, Intel faces threats from established ARM-based players such as Qualcomm (NASDAQ:QCOM); whereas when it comes to tablets, Nvidia (NASDAQ:NVDA) seems to be performing exceptionally well. Increasing number of product wins for Nvidia’s Tegra 3 processors and Qualcomm’s leap to 28nm process technology with the introduction of its Snapdragon processor, are thing that Intel needs to be wary of to survive in this market.

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Our current price estimate of $30.62 for Intel stands at a premium of above 10% to the current market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

The hard drive shortage that resulted from flooding in Thailand in October 2011, led to a decrease in demand for chipsets by PC manufacturers in anticipation of shortage in supplies. The impact of the shortage resulted in depressed revenues for Intel and almost all its competitors and is likely to persist till the first half of this year.

However, we feel that due to the supply shortage OEMs (original equipment manufacturers) are likely to give preference to high-end PCs, which might become advantageous to Intel, as it sells lower-priced processors compared to its competitors AMD.

  1. Next Wave of Ultrabook Devices Now Available; Intel Signs Agreement for Touch Capacity to Meet Expected Demand, Intel Newsroom, June 4, 2012 []