Jefferies analysts have reiterated a Buy rating for Intel Corporation (NASDAQ:INTC) owing to the competitive advantage the chip maker enjoys in transistor innovation. Leakage power or power consumed by the transistor while it is idle has increased manifold with the decline in features of the transistors.
According to the Jefferies analysts (Mark Lipacis, Sundeep Bajikar and Delos Elder) the design of the transistor is gaining more significance for ensuring the success of MOU makers in power sensitive applications like tablets and handsets. This scenario is a positive development for Intel’s R&D as it is a dominating player in the transistor innovation.
R&D helping Intel to maintain lead
Intel Corporation (NASDAQ:INTC) has been dominating the transistor industry over the past decade with products like silicon (’03), HKMG (’07), and tri-gate (’11), which solved the power leakage issue at the transistor level, and has given the chip maker a 3+ year lead over its manufacturing competitors. According to the analysts, Intel is working on III-V compound innovation that “could keep it on the Moore’s law transistor cost curve and extend its competitive position.”
According to analysts, Intel’s transistor and manufacturing dominance is the result of its $10 billion annual R&D budget, which “translates to a sustainable competitive advantage.”
The ASUS Transformer T100, which is powered by Intel’s new low cost/low power Bay trail MPU, outperformed Samsung’s Chrome book as the #1 bestselling laptop on Amazon. Intel’s low power versions of Haswell and Bay Trail would give it a significant upside as the chips can be used in low priced 2-in-1 notebook segment and sub $100 tablet market, which would help retain Intel’s share in the computing device market.
Intel Corporation (NASDAQ:INTC) enjoys an edge over other competitors in low cost and low powered MPU owing to an increase in R&D and Capex budget, in the past 3 years. There has been a considerable improvement in the mainstream and performance MPUs chips on the back of its tri-gate transistors. MacBook Air battery life almost doubled to 12 hours with latest Haswell chips compared to the previous Ivy Bridge generation.
Upside and downside to valuation
Analysts have a price target $30 on Intel Corporation (NASDAQ:INTC), and suggest following upsides to Intel’s valuation; winter sales may surge on the back of lower priced Windows 8 and longer battery life MPUs, penetrating deeper and faster into the tablet category and winning smartphone designs.
Downside scenarios indicated by the analysts in the report are if the tablet cannibalization of PC increases, wrong implementation of 14nm process, gross margin declines due to under utilization and valuation compression associated with lower growth outlook.