Intel Corporation (INTC) Well Positioned Despite Q2 Setbacks

Despite investor concerns over excess inventory languishing in Intel’s distribution channels and Intel Corporation (NASDAQ:INTC)’s acknowledgement that its Haswell chip won’t provide a short-term boost, not all analysts are down on the company. According to Chris Lau of Kapitall, Intel is well positioned to take advantage of current trends in the PC sector.

Intel Corporation (INTC) Well Positioned Despite Q2 Setbacks

Intel held its ground on revenues

While inventories did go up in the second quarter, they remain below historical averages and Intel Corporation (NASDAQ:INTC) has held its ground on revenue. Gross margins are expected to drop from 60 percent to 59 percent, but Intel is reducing capital expenditure from $12 billion to $11 billion to account for changes in the PC market. Intel projects that this move will push margins back up to 61 percent in Q3, and that revenues will rise 5 percent sequentially.

Looking at the bigger picture, Intel Corporation (NASDAQ:INTC) is still in the process of transitioning away from traditional PCs to ultra-compact laptops and mobile devices, and the Haswell chip refresh could easily drive future growth. Intel executives pointed out in their earnings call that tablet/PC hybrids could drop to below $400, making them more competitive against tablets, and ultra-light laptops could drop to $300, expanding the customer base.

“Intel is diversifying away from traditional PCs, into such devices as ultrabooks. The refresh of chips, including the Haswell, could still improve margins and profits,” says Lau.

Silvermont to be used in upcoming gadgets

Silvermont, the next generation of Intel Corporation (NASDAQ:INTC)’s Atom architecture, is even more promising as it promises to reduce power consumption by 80 percent while tripling processing power. It’s already slated to be used in Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930)’s Galaxy 3 Tab, and it can support both Microsoft Corporation (NASDAQ:MSFT)’s Windows and Google Inc (NASDAQ:GOOG)’ Android operating systems.

The key is that Intel still has a firm grip on the traditional market while making the transition, unlike other tech companies that only try to switch direction after they have lost their base. Anders Bylund at the Motley Fool said, “I would argue that Microsoft deserves a bargain-bin valuation, whereas Intel doesn’t. That’s why I own one stock and not the other.”

“Both companies have largely failed at penetrating the mobile market so far. Intel’s mobile processors haven’t gained any traction with system builders, [but] Intel is making inroads into the new computing model while dominating the established market,” says Bylund.

He figures that Intel Corporation (NASDAQ:INTC) is currently undervalued by the Street, and that stocks should be going for at least 30 percent more than they currently are.