announced that its CEO, Paul Otellini, will retire next May. With
Otellini only 62 years-old, I was not expecting this announcement until
I'm a 'charter member' of the Otellini fan club.
However, given the course he has chartered, and the structural changes
he and his team have implemented, my confidence in Intel's future
Shortly after he became CEO, Otellini laid out a very clear plan as to
how he would radically change not only INTC's operational structure, but
also the operational culture.
Given the price of INTC today, I
think Wall Street is still underestimating INTC and misjudging how well
it is positioned to compete in not only today's market, but also where
the market for processor solutions is heading.
While I'm sure
some Wall Street pundits will suggest that Otellini is getting out just
in time, my view is decidedly on the opposite side of the ledger.
I see it, Otellini is not retiring early because market trends have
shifted away from INTC's strengths, but because INTC's strategy and
direction is better aligned today with market trends than it has been in
nearly two decades.
This is not to suggest that life will be easier or less challenging for
INTC going forward. Competition will most certainly remain stiff and
However, now that architectural advances have taken
INTC to an intersection where it can fully compete in the mobile
markets and maintain its dominance in enterprise markets, I think INTC's
best days are yet to come.
New smartphones using INTC's Medfield
System on a Chip (SoC) solution have been shown to outperform even the
smartphones using Qualcomm's (QCOM) newest chips.
this is interesting is Medfield is INTC's first SoC design for
smartphones, and it uses only a single processor core and is fabricated
using trailing edge 32nm fabrication technology.
Next year we'll
see INTC transition this chip to 22nm FinFET fabrication technology,
and from there on to 14nm where INTC will likely compete with a one node
fabrication advantage versus the half node disadvantage it has with
With this roadmap, I believe INTC will move from the
nearly zero market share it could claim in smartphones in 2011 to low
double digit market share by mid-2014.
In the enterprise markets
we've seen INTC substantially expand its market penetration well beyond
its core server positioning to where its x86 processors are now commonly
used in enterprise storage solutions as well as for control plane
processors in networking equipment. INTC was a rounding error in these
markets when Otellini took the reins in 2005.
Today the talk is
new solutions using ARM Holdings' core processors will take share from
INTC in these enterprise markets. I think the share will be modest and
that aggregate market growth will be high enough to where INTC will
still grow enterprise revenue in spite of seeing some share slip away to
At the bottom line, my thinking on INTC is unchanged. I
think Wall Street is materially underestimating how well INTC will do in
mobile markets (smartphone and tablet) and overestimating the
competitive threat ARMH core processors present in the enterprise
Based on this view I think INTC has been substantially
oversold, and considering the fact INTC's dividend represents a 4.5%
annual yield at the current price, that INTC continues to merit
consideration as a long-term strategic investment.