Here's why the margin and price myth will be busted
Furthermore, analysts have expressed concern for Intel’s margins. As Raymond James analyst Hans Mosesmann stated in a recent research note seen by Forbes, the company could be heading for “a potential gross margin nightmare.” With the increasing popularity of lower-margin chips and rising competition from ARM in the microprocessor market, Intel could see its margins fall from the mid-60 percent range to the 50-percent range in the next two years.
But as the demand for PCs continues to decline, it is important for Intel to be able to tap into the market for mobile devices. Gartner, a leading information technology research company, announced in October that worldwide PC shipments totaled 87.5 million units in the third quarter, representing an 8.3 percent decline from a year earlier. IDC, another research firm, also showed that shipments fell more than 8 percent in the most recent three month period. It is the largest drop for the industry since at least 2001.
Taking into account the components of our CHEAT SHEET investing framework, Intel is a STAY AWAY until shares can stabilize and the company increases its exposure to non-PC products.
"“a potential gross margin nightmare.” With the increasing popularity of lower-margin chips and rising competition from ARM in the microprocessor market, Intel could see its margins fall from the mid-60 percent range to the 50-percent range in the next two years."
Intel worst case, bad, ugly margin NIGHTMARE would be if the Intel margin dropped to the same level that TSM has today. TSM margin is 48%. TSM PE ratio is 17.4. INTC PE ratio is 9.2.
I expect that Intel will at least cram the whole phone or whole tablet logic into 1 package and then sell that part for value and there will be a number of companies who will want a share of the smartphone and tablet markets. Intel will put them into the market and make them successful. They will sell the transistors and fill the fabs. There will 4 players: Samsung, Apple, QCOM and Intel.
The market is pricing in a collapse in Intel revenue and margins. If it happens, Intel will probably have to slow down the dividend increases. If it doesn't the analysts will eventually have to face their error.