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The Post-PC Processor Market Is Alive And Well

Tickers in this article: ARMH INTC MSFT NVDA QCOM

Chris Lau, Kapitall: Computer suppliers are getting no bullishness from investors. Chip giant Intel (INTC) is down nearly 7% over a year, while Microsoft (MSFT) is up 29%. Barron’s recently published an article suggesting that Intel would double in 5 years. The author cited high expenses in research and development and heavy reliance on sales on PCs as reasons Intel shares are underperforming. [Read more from Chris Lau: 5 Investing Ideas as Commodities Tumble]

Microsoft up, Intel Down

Jack Hough, the writer for Barron’s cites four positive developments for Intel:

1.     Updated Atom chips at 14 nanometers will move ahead of ARM chips, which are 28 nanometers

2.     Server chip demand will rise

3.     PC sales will be supported by demand from emerging markets

4.     Manufacturing costs will keep dropping

Analysis

ARM Holdings (ARMH) is outperforming Intel by a wide margin, but the high forward multiple of 47 for ARM should scare away conservative investors. Intel pays a dividend that yields 3.7%. As tablets and ultraportable computers choose Atom processors, Intel shares will rise. Intel is currently valued at a forward P/E of 13, less than half that of ARM.

ARM is also outperforming NVIDIA (NVDA) and Qualcomm (QCOM). Investors are worried that Intel’s latest Haswell processor will hurt PC graphics processor sales. Integrated graphics chip performance is greatly improved with the HD Graphics 4600 on Haswell. Investors forget that the discrete graphics is a market on its own, and that sales in this segment for NVIDIA depend on game releases.

Qualcomm is off moderately from recent highs on worries that NVIDIA and Intel would compete more effectively in the 2G/3G/4G market. The Qualcomm Snapdragon line still holds a nearly 60% market share of the baseband market. Intel is trailing, and holds a 12% share.