Over the past year, Intel (INTC) stock has been fairly decent run, with a return of about 11%. But of course, it has lagged other giant tech operators. During the same period, Microsoft (MSFT) clocked a gain of 14% and Oracle (ORCL) is up about 22%.
Of course, INTC has continued to struggle with its transition to mobile as the PC market has been declining. And while INTC has pumped up R&D and dealmaking, the results have been mixed.
But does INTC still have a chance to get back on track? Or is the stock just one big missed opportunity? Well, let’s take a look at the stock’s pros and cons:
Intel Stock Pros
Internet of Things: Internet connectivity continues to be embedded in non-computer systems and devices. Examples include: in-car infotainment, patient monitors, connected thermostats, smartwatches and so on. According to a report from IDC, the market for the market is expected to reach $8.9 trillion by 2020. This could ultimately be a huge opportunity for Intel stock, as the company has been making heavy investments in the category. There have also been some interesting acquisitions, such as the recent deal for BASIS. Already, INTC has been seeing encouraging results. In the latest quarter, the Internet of Things group generated revenues of $482 million, up 32% over the past year.
Innovation: INTC continues to spend large amounts on R&D, coming to about 38% of overall revenues. To this end, the company has pushed the boundaries of chip technologies, as seen with Broadwell. The product is incredibly small, at 14 nanometers, but also uses 30% less power than the Haswell chips, making it an excellent candidate for tablets. Perhaps this is why INTC has an aggressive forecast for this marketing in 2014, with the expectation of shipping 40 million units.
Dividend: INTC is a big-time cash generator. In the first quarter, operating cash flows came to a juicy $3.5 billion. With its massive global footprint, the company has been able to benefit from economies of scale. The cash flows also make for an attractive 3.4% dividend yield.
Intel Stock Cons
Mobile: Again, INTC missed the tremendous opportunity that was mobile devices. Instead, other companies like Qualcomm (QCOM) and Broadcom (BRCM) took advantage of the megatrend. If anything, the loss of mobile has been the bane of Intel stock. Unfortunately, it looks like the company will continue to have challenges. In Q1, the segment for mobile and communications saw a 52% drop in revenues to $156 million. The fact is that it has been extremely tough to create a mobile ecosystem, which means Intel is stuck playing a long game of catch-up.
PC Blues: The long-term prospects do not look bright for PCs. According to IDC, the worldwide shipments of PCs fell by almost 10% in 2013. However, the decline is forecast to improve to -6% this year. But this is likely a short-term improvement because of the replacements for Microsoft’s XP operating system. Keep in mind that IDC predicts that worldwide shipments of PCs will shrink from 315.1 million in 2013 to 291.7 million in 2018. Right now, INTC gets about 80% of its revenues from PC and server systems. So, if the PC market continues to erode, it will be extremely difficult for the company to see much revenue growth.
Security: INTC owns McAfee, which provides security solutions. However, the unit still has a heavy reliance on the PC side, as with its anti-virus solutions. As we’ve seen with Symantec (SYMC), though, the market is quickly eroding. McAfee has been investing more in enterprise security, but the market remains extremely competitive, with rivals like Palo Alto Networks (PANW).
Intel Stock Verdict
INTC has certainly maintained its competitive advantage with its core PC/notebook chips. No doubt, it will be tough for rivals to get an edge, especially in light of the company’s massive scale.
But the fact remains that the PC market will probably lag at the expense of the growth in tablets and smartphones. INTC’s efforts in mobile remain unclear, and it will be extremely tough for the company to unseat entrenched operators like Qualcomm, which continue to innovate.
So, should you buy Intel stock? No, the dependence on the PC business will remain a drag on growth.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.