There was a time when Intel (NASDAQ:INTC) stock was a key blue-chip tech stock. Granted, it’s not like INTC is currently having trouble rubbing two pennies together. Its chips still control 91% of the x86 server central processing units (CPUs) in the market, and 30% of that will be its newest Xeon chip.
But the trouble is that its market share is less than it was last year. And INTC’s chief rival, Advanced Micro Devices (NASDAQ:AMD), while only owning about 9% of the server market, is gaining ground.
What’s more, INTC stock has suffered from recent supply chain issues getting its laptop CPUs built and shipped, so AMD gained some ground there, as well. But recent numbers look like INTC is at 75.5% market share while AMD sits at 24.5%.
INTC Stocks Real Challenge
When INTC started, it was pretty much a necessity that a chip designer also be a chip maker. There weren’t foundries that could take a chip design and build it. But in recent years, “fabless” chip companies have been the way to go.
No longer do chip companies have to spend money for their own chip making facilities. They can concentrate on designing chips and then send them out for production.
However, this has run into its own set of challenges. Frosty relations between the U.S. and China are now affecting foundries in China and even Taiwan. U.S. chip makers are realizing the benefits of managing the means of production in the U.S. or Europe.
But that changes the cost structures, as well. And INTC needs help from western governments to subsidize moving operations back to the U.S. and Europe.
Yet at the same time, Asia is growing rapidly, which makes having operations in Asia crucial.
Also remember that INTC was late on the mobility boom. It lost leadership in a massive megatrend and has been working extra hard trying to turn its legacy into something dynamic for today and tomorrow.
New Thinking May Help Bring New Opportunities
In February, INTC announced new Chief Executive Officer (CEO) Pat Gelsinger was taking the reins. He is a former INTC employee who left after 30 years in 2009 to eventually serve as CEO of cloud and mobility infrastructure firm VMWare (NYSE:VMW).
He brings some outside ideas into the relatively insular culture and has started by rethinking its foundry business. He’s committed to a $20 billion foundry in Arizona and he wants to attract fabless chip companies as customers.
It was recently announced that INTC is going to have an initial public offering for its automotive chip firm Mobileye in mid-2022. This has many investors excited. The company is focused on smart cars and adds some zip to the legacy business.
But there’s a challenge: can INTC stock deliver the numbers and the growth while making these moves toward the future.
Certainly, its massive server and laptop market shares aren’t going to keep the moat they currently have. We’re in a world that has far too many chip designers out there to think that that’s possible.
So the good news is INTC stock is cheap at its current price of $50.92. And its new leadership is addressing some opportunities and eliminating some concerning legacy challenges.
The bad new is it still has to deliver on this vision. And the longer it takes to turn this ship, the more opportunity it leaves for competitors to run holes into its sides.
For now, given its dominance and its new vision, its current price is a good entry point for long-term growth investors. And its 2.7% dividend is a decent return for your patience for now.
On the date of publication, GS Early did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
GS Early has been an award-winning financial writer and editor for nearly three decades, working with many of the leading financial editors during that time. He’s seen a few things and hears more.
