Intel Corporation (NASDAQ:INTC) plans to expand in the mobile computing space in a serious way. A report from Seekingalpha by Michael Blair examines the effect of this on the chip makers share price and how a success in the mobile space could work out for shareholders. As per the report, the chip maker may be worth $50 or more by 2017.
Markets Expanding For Intel
As per the data from IDC, smart device market globally has 918 million phones and 191 million tablets, 134 million desktop and 187 million laptop computers, in 2013. Also, IDC expects a sharp rise in the markets for smartphones and tablets while for desktop and laptop computers there will be “somewhat sideways movement.”
The latest developments from Intel Corporation (NASDAQ:INTC) focusing on mobile devices have generated huge discussions from experts on the technical aspects of the innovations from Intel and how it could work in the mobile processor market.
This article from Blair focuses on the business side of the discussion with estimates till 2017 and taking “IDC forecasts as a reference point.”
Following assumptions are made by the author:
- Intel had only one percent of smartphone market and two percent of tablet markets in 2012.
- In 2013, Intel chips were used in 90 percent of desktops and laptops.
- For 2013, the chip maker is expected to up the smart phone market share to 3 percent and 15 percent by 2017.
- In the tablet market, Intel will have around 20 percent of the market share in 2013, and 30 percent by 2017.
- For desktops and laptops, Intel will command around 90 percent of the market.
Based on the assumptions, the writer calculated that the number of devices with "Intel Inside" will increase from 325 million in 2012 to some 677 million in 2017, a 17 percent growth rate.
Revenue from Personal Computer Client Group accounted 64 percent for Intel Corporation (NASDAQ:INTC), in 2012, and this proportion has been “relatively constant since at least 2010.” Assuming average selling price ("ASP") of Intel’s offering for desktop and laptop to be $105, and ASP for smartphones and tablets of $40 per unit, the revenue for PC Client Group comes about $33 billion for 2012, which is similar to what has been reported by the company.
Using the same ASP, for 2013 revenues comes at $33 billion, and for 2017, it comes to $49 billion. At 60 percent gross margin and a 29 percent tax rate net income from mobile devices comes to 6.6 billion after taxes or about $1.32 per Intel Corporation (NASDAQ:INTC) share. The remaining 36 percent of the revenues will also “grow modestly as well”, so for 2017, net income might be $3.75 to $4.00 per share, up from $2.20 in 2012.
In the conclusion, the author says if Intel does well in the mobile devices the shares of the company could trade at 12 to 14 times earnings, supporting a price in the $50 range by 2017.