Intel’s Long-term Potential Makes It A Buy

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Intel has not been very good to investors this year with its stock down by around 10% year to date. For the same period, the S&P 500 is down by less than 2%. The question here is, does this signal a buy opportunity? Timothy Green tries to answer this question in an article posted on The Motley Fool.

Trends for Intel

Intel still gets a major chunk of its revenue and profits from PCs, but it’s not the same as before. Though Intel’s revenue from the client computing segment is declining, its revenue from the data center segment is recording double-digit growth. In the past three quarters, the data center segment has earned more operating profit for Intel than the client computing segment. This marks a big turn from the same period last year, Green says.

Even the PC market will stabilize going forward, leaving the chip maker in a “truly enviable position.” Since Windows desktop applications run on x86 processors, AMD and Intel are the only chip makers that can support them. But since AMD is struggling to manage its operations, as is evident from its growing losses, this leaves Intel’s position unchallenged. The chip maker can also gain from other devices such as two-in-ones.

In the mobile market, Intel has more rivals than in PCs. However, the chip maker enjoys an edge in manufacturing over third-party foundries, as most of the “ARM chip designers outsource manufacturing,” Green says.

Potential for long-term growth

Analysts are not expecting any growth in earnings in 2016. The gains in the data center segment are likely to be offset by weakness in PCs and continued losses in mobile. Deciding on whether or not the chip maker is a buy depends on “your opinion of the company’s long-term growth prospects,” the article says.

In the PC segment, growth, if any, will be slow, but Intel will continue to dominate the market. In the mobile segment, the chip maker is expected to become a major player, but margins will be less than those of the PC segment. For the data center business, Green does “suspect Intel’s near-monopoly won’t last” but sees a growth opportunity from the Internet of Things marketIn the end, Green says that though predicting the future is tough, he is confident about Intel’s long-term growth and sees it as a good buy at the current price.

At around 9:43 a.m. Eastern time today, Intel shares were down 0.21% at $33.51.

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