Intel Is Going Aggressively After AMD

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Intel Corporation (NASDAQ:INTC) focused almost entirely on wearable devices at the Consumer Electronics Show in Las Vegas this year. The company showcased prototypes of an earpiece and a smartwatch that can be powered by its Quark processor. However, Bernstein Research analysts Stacy A. Rasgon and Ranjit Ramachandran remain cautious on the stock. They have an Underperform rating on Intel Corporation (NASDAQ:INTC) with an $18 price target.

Intel unlikely to see a quick payoff in tablets

Bernstein analysts recently discussed the company’s future plans, upcoming products and the leadership of the new chief Brian Krzanich with a senior Intel Corporation (NASDAQ:INTC) executive. The Santa Clara-based chipmaker is foraying into tablets market. But the company is unlikely to see a quick payoff from the move. At best, it will be a long-term strategic investment. In table space, Intel Corporation (NASDAQ:INTC) is going after low-end market, where its rivals are selling microprocessors at less than $10. Even if Intel Corporation (NASDAQ:INTC) captures the entire market of about 200 million tablets, it will add just a few billion dollars to the company’s revenue.

Talking about the effect of tablet sales on PC market, the unnamed Intel Corporation (NASDAQ:INTC) executive said that 2014 will be a strong year for tablets, especially in emerging markets. However, the company believes that tablets are actually delaying, rather than replacing, the PC buying intent of users. As user preference gradiually shifts to smaller tablets, the chipmaker sees an upside in the 10-13-inch laptops, ultrabooks and similar form factors. Intel Corporation (NASDAQ:INTC) is targeting that segment with Bay Trail.

Intel going aggressively after AMD

Intel Corporation (NASDAQ:INTC) is trying to maintain the segmentation between Atom and Core. But the company plans to have a competitive product at every price point. The company recently said that it will go aggressively after the low-end market, threatening Advanced Micro Devices, Inc. (NYSE:AMD). If Intel Corporation (NASDAQ:INTC)’s Bay Trail becomes dominant in this niche, this will be a significant blow to Advanced Micro Devices, Inc. (NYSE:AMD). Meanwhile, demand for the higher end chips such as Core i5/i7 continues to hold up well.

Despite Intel Corporation (NASDAQ:INTC)’s big plans, Bernstein analysts are skeptical. Rasgon and Ramachandran said that the pricing environment has been the biggest source of support for the company over the past few years. However, that may come under pressure as Intel Corporation (NASDAQ:INTC) tries to boost demand for ultrabook platforms through mainstream pricing. It will affect the company’s gross profit and topline growth. Moreover, fierce competition, high capital expenditure and minimal upside in smartphone space create long-term risk.

Intel Corporation (NASDAQ:INTC) shares skipped 0.10% to $25.56 in pre-market trading Wednesday.

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