FundamentalsWritten by Ophir Gottlieb, 10-16-2015
Intel's latest earnings release showed a year-over-year decline in sales of about 0.6% and earnings were down over 6.2%. The downward trend has been blamed squarely on the shoulders of slowed PC demand. Here's the thing though, the PC market decline is not the story for Intel, not even close. The story is a multi-trillion dollar segment thats size will dwarf the entire size of the Internet. Intel is the future.
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Let us not get caught by the market malaise that views Intel as the long forgotten mega cap. Wall St. is just now starting to get the idea. Here's why:
Intel is the world's largest semi-conductor company and spends more on research & development than almost every company in the world in any sector. This R&D spend isn't focused around the PC market, it's focused around the Internet of Things (IoT), a trend expected to hit hundreds of billions of dollars in the next five years and over $6 trillion in a decade.
Here's a chart of all companies above $100B in market cap equal spaced on the x-axis (ranked) with R&D expense in the latest quarter on the y-axis. Note Intel is number two amongst all companies.
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What is Intel Spending On?
According to a Zacks Equity Research industry outlook report the "things" segment is estimated to account for 10% of the IoT device value which INTC is participating in (with products like the MICA bracelet). The second and considerably larger part of the IoT opportunity is in cloud computing which allows the data captured from the "things" to be stored and analyzed and ultimately become valuable to industries like retailers and healthcare providers (and marketers). Clouds (computers) are powered by semi-conductors.
While there are some radically exciting firms in the IoT space, like NXPI, NVDA, AVGO and many others, let us not forget that it's Intel, and only Intel, that dominates the CPU business and this is the business that powers cloud computing.
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Why Does Cloud Computing and IoT Matter?
Aside from hosting websites and powering streaming services like Netflix (NFLX), the cloud's on demand capabilities also power the data that is created by all of our little gadgets, ranging from our smart phones, to Fitbits and other wearables. That data is extremely valuable not just to the end user, but even more so to healthcare providers, retailers and marketing firms.
You see, that data gives marketing firms a level of precision for customer wants, needs and behaviors that have never been available before. Advertising is taking on a new realm -- one that is directed, data driven and totally reliant on the cloud. The same goes for retailers.
Further, healthcare too is getting more precise and individual focused and that data is spurring massive new segments inside biotech and pharma. Friends, that's Intel. Check this out:
But that too, is not the entire story. It turns out that most IoT smart devices aren't in your home or phone—they are in factories, businesses, and healthcare. Check this snippet out from Intel's website:
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Yes, that's $6.2 trillion. Intel is in a massive growth segment and while powerful new competitors have surfaced, Intel is still the King Maker, and King Maker's in a segment growing as fast as IoT are not "old news," they are the news. Don't fall asleep on Intel. The firm is boldy awake and has a massive growth opportunity ahead of it.