The last 3 quarters (including the just ended Q2), Intel was hit by one time excess capacity charges and startup cost for the 14nm FAB upgrade. This caused GM for last 3 quarters to drop below 60% and resulted in the lower-than-usual earnings. Starting this quarter, GM will be back to normal (above 60%) and Intel is expected to earn $0.65 (Q3) and $0.74 (Q4) (See article by Russ Fischer). This means we should see plenty of ANALyst upgrades coming after earnings release next Wednesday (current estimate for Q3 is $0.50).
Compare Intel to Cisco, which has EPS of $1.75 to Intel's $2.00. Which out of these two companies will more likely double in revenue in the next couple of years? Intel is taking major market share in the tablet market this year with Bay Trail, and smartphone market next year with Merrifield. Intel is also going into other markets such as SSD, wearable devices, foundry, Intel TV set-top box, etc. On top of this, expect Intel's server market to grow in double digits and tradition computer markets start growing again with Haswell/Broadwell introduction. Cisco stock price currently at $25.16 while INTC is at $23.13. I think Intel is extremely undervalued here.
Yes, my biggest dispute with the Analyst numbers for this quarter is that they are expecting GM similar to what INTC had last quarter. I think the drop in GM was due to a ramp of 14nm, as you suggested and 450 MM wafers. This was a one time deal. The manufacturing efficiency will improve GM going forward and this was implied in the last CC at the end of the quarter but the GS analyst kept trying to argue with Stacy and I think some folks missed this. In any case, I am expecting 60% GM this quarter and if you do the math you see that the analyst estimates are too low.
I think both are undervalued...Intel for the reasons sighted and Cisco for their investment into software-based mixed servers/routers. The digital revolution is only in the third inning, in my estimate. The demand for speed/power as it plays against bandwidth efficiency changes the evolving landscape. Both firms will shine with their dominant, global footprints. All the best.