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It’s Dumb to Bet Against Intel

It's difficult not to get smitten by a company that consistently delivers results that are this good. But even those who may have an axe to grind with {complink 2657|Intel Corp.} must acknowledge the company knows how to win in its core market. Whether Intel can extend its winning strategy to new and emerging markets at the same ferocious pace is now the main question facing competitors, customers, and investors.

After going through Intel's fourth-quarter results, outlook statement, and comments during a conference call with financial analysts, I came to the conclusion that it would definitely be dumb to bet against the company in any market it turns its attention to over the next years, hence the headline of this commentary. Certainly, Intel's fourth-quarter 2010 results and first quarter 2011 forecast show it knows how to dazzle the market. (See: Intel Closes Fiscal Year.)

Here's a summary: Net income in the final quarter of 2010 surged 49 percent to $3.4 billion, or 59 cents per share, from $2.3 billion, or 40 cents per share, in the year-ago quarter when results took a hit from the $1.25 billion payout to rival {complink 103|Advanced Micro Devices Inc.}. Revenue for the fourth quarter rose 8 percent to $11.5 billion from $10.6 billion. For the full year, Intel's revenue rose to a record $43.6 billion from $35.1 billion in 2009.

The company said first-quarter sales could rise as much as 12 percent to $11.5 billion from $10.3 billion in the first quarter of 2010. Intel is also investing heavily in capital equipment and R&D in 2011 with the stated aim of adding one additional “high-volume leading-edge manufacturing fab” and pushing into the smartphone and tablet device markets. The company expects to spend $9 billion on capital equipment this year and $7.3 billion on R&D, staggering sums at a time many rivals are still either cutting expenses or hoarding cash out of concerns about the strength of the global economy.

Equity investors liked what they saw and heard from the company. In after-market trading, Intel's stock price rose almost 3 percent — after declining during regular trading before the results were announced. News reports said semiconductor shares rallied in Europe and Japan on the heels of Intel's positive results. Even shares in {complink 444|ARM Ltd.}, its competitor in the smartphone and tablet computing markets benefited from Intel's good news. ARM's stock price rose 12 percent in London, according to news reports.

The evidence is compelling to anticipate Intel holding its own against competing technologies in smartphones and tablets, where manufacturers seem to have prematurely anointed ARM over Intel. I say this because Intel has shown itself to be a master of the marathon race, and the competition for OEM design socket contracts in this market segment has only just begun. Winning here will require the ability to consistently deliver the most competitive products at the lowest possible prices and power consumption to customers.

These are the areas Intel is focusing upon, according to its top executives. Pouring money into R&D as well as leading-edge production equipment will give the company the opportunity to offer the competitive advantage of stronger and faster processors, reduced pricing, and lower power consumption, according to Intel president and CEO Paul Otellini, during the conference call. Here's how Otellini explained the company's strategy for the years ahead:

    Many of you have asked us questions about how we will compete with ARM in the new segments of mobile computing. Our answer is very simple. As we have done for decades in the traditional computing markets, we will apply the world's most advanced silicon transistor technology to these new segments to deliver the lowest power, highest performance, lowest cost products on the planet.

    When these chips are combined with our support for the world's leading mobile operating systems, our proven ability to create broad ecosystem support, and our growing software capabilities, I'm confident we will be very successful in these segments. These investments are the strongest possible statement of our confidence in our business model and our growth opportunities, and will extend our technology advantage even further.

In my next comments on Intel later today, I will highlight major takeaways from the company's fourth-quarter results and outlook, and include statements from company executives on new market opportunities, challenges from ARM and other competitors, and the strength of emerging markets over mature markets.

9 comments on “It’s Dumb to Bet Against Intel

  1. Barbara Jorgensen
    January 14, 2011

    I'm with you, Bolaji. Time and again, Intel comes out with results that cannot be argued with, even though they “missed” the smartphone revolution this time around. If they can perfrom like this even when they miss a step, I just bow down and move out of the way.

    I also don't bet against Apple. They've been able to establish and maintain a premium brand in the worst market under the worst of circumstances and even with challenges ahead, I don't doubt that the next product we are all holding our breath for will be an instant success.

    I tend to be a late adopter when it comes to Apple products. My first laptop was a Mac, and although I still consider going to a PC a regression, I usually wait until the prices of Apple products go down. I do love the Shuffle I inherited from my son

  2. SP
    January 14, 2011

    Well the headline says it all. People who have Intel's share must be rejoicing. Its nice to see a company delivering so consistent results. I guess they are also spending huge in research. and funding many start ups or small companies. A company with social responsibilities and consistent results. I guess a dream company to work for.

  3. DataCrunch
    January 14, 2011

    What can you say about Intel that hasn’t been said before?  They have been and continue to be a force to reckon with.  Truly an industry giant and with the recent acquisition announcements of Infineon’s wireless business unit and McAfee, Intel will be expanding its wireless mobile business and become a leader in mobile security solutions.

  4. Anand
    January 15, 2011

    I agree with what is said about Intel in this article. But I still have some doubts.

    Despite being leader in the market Intel missed wave in the ultramobile market. Issue is most of the mobile software developers are increasingly focusing on ARM platforms. This might cost Intel dearly. Intel says it will coverup this gap by using silicon transistor technology, its needs to be seen how much effective this stratergy will be.

  5. t.alex
    January 16, 2011

    I believe the answer to ARM challenge is not simply advanced technology that Intel possesses. The whole ecosystem and supply chain must be prelevant as well. Can we tell how much mobile market share Intel has now?

  6. Anna Young
    January 16, 2011

    Anandvy, This is why Intel is not holding back in the fight to show it can play in the wireless market. Pound for pound, Intel will pulverize ARM in any showdown. However, look at the number of companies that are embracing ARM intellectual property and using this to leverage their own presence in the market. ARM technology is an enabler for others to enter the market. Sure, ARM gets only a sliver of the sales its IP enables, but then it can focus on developing additional IP that would ensure its technology continues to be relevant. Intel understands this. It's a different market; It's not Intel versus ARM but Intel versus the crowd recruited by ARM. Separately, these companies cannot take on Intel but together they represent a huge force. That should worry Intel notwithstanding the size of its piggy bank.

  7. Ashu001
    January 17, 2011

    Bolaji,

    You didnt mention one important issue in your post-Intel is a Monopoly and consequent to that,it has a hold(whether its visible or invisible is immaterial) over Channel Partners and OEM Manufacturers/Suppliers that cannot be broken very easily.The EU as well as the DoJ tried to sue them to get them to compete on equal terms with AMD but it all came to Naught in the Traditional Computing space.

    It sure helps ARM that ARM was present in the Mobile Computing space before Intel.So atleast they have a strong prescence there,but as your title points too very rightly only a Fool will bet against Intel.

    Regards

    Ashish.

  8. bolaji ojo
    January 17, 2011

    Ashish, Intel will contest being called a monopoly but you are right. When a company controls more than three-fourths of a market, it can call most of the shots and get OEM customers in its corner with favorable terms. That's what the EU probe of Intel centered upon. Personally, I don't see the crime in this. If you've built up market share legally, you shouldn't just hand it over to someone else without a fight. However, this does not mean tying the hands of the rivals and making it difficult for them to compete.

    In the case of ARM, again you called it correctly. They got into mobile computing at a time Intel was more narrowly focused on the computing sector. Now, the lines between all these markets are blurring and Intel now realizes it has a challenge in a very unconventional rival and in adjacent markets that are now encroaching on its stuff. Will Intel's hold over the channel be as easily transferred into the mobile and wireless computing market? It's a complex question with nuanced answers but it won't hurt Intel to have old friends in these new markets.

  9. Ashu001
    January 17, 2011

    Bolaji,

    I agree entirely with your last line here,

    It's a complex question with nuanced answers but it won't hurt Intel to have old friends in these new markets”

    Basically it will help them a lot.Many of the things which these Monopolies tend to do (to preserve their monopolies) skirt on the illegal but they are able to do enough to cripple rivals especially upstarts who are'nt backed by Rich Sugar Daddies…

    For instance in the case of the Ciggerate or Telecom Industries in America.Why are they so profitable?

    The level of barriers both visible and invisible to entry are so high,Its close to impossible for new entrants to break in and make money reliably.

    Same thing happens in the Chip space with Intel as well.I remember the case where they get incentives to suppliers/resellers not to hold any AMD Machines in stock.

    Regards

    Ashish.

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