INTC - Intel

[FrankArabia]

your thoughts on this?

 

I got in at $24.75 and $24.00.

 

I think we're in for some pain in the near term but overtime they should gain momentum on the mobile side as the PC side takes off from IT refresh.

[ItsAValueTrap]

Long writeup on Sumzero:

http://sumzero.com/news/78

 

VIC writeups:

 

INTC

http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/78064

(I don't have access to this yet.)

 

long AMD

http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/58475

*I disagree with many technical points in the writeup.  The comment on the 'Introduction of C++' is a little misguided because C++ is a relative old language (with zero support for heterogeneous computing / GPGPU / GPU acceleration; 3rd party libraries add that capability).  Right now the leading solution for heterogeneous computing would likely be an Intel CPU with a Nvidia GPU... though it depends on the application.

 

long AMD

http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/43112

[ItsAValueTrap]

I am long Intel and this is my writeup on my blog:

 

http://glennchan.wordpress.com/2012/09/08/intel-a-cheap-ish-growth-stock/

 

------------copy and pasted below------------------------

 

Briefly, Intel may be a good investment due to:

 

    Cheap.  The P/E is around 10.3.

    In the long run, Intel will be able to consistently grow its revenues as we find more uses for computers (e.g. smartphones, tablets, cloud).  8% revenue growth will likely continue into the near future.

    Its economic moat.  Its dominant market position lets it enjoy economies of scale in R&D and in manufacturing.  On the fabrication side, Intel is almost always a step ahead when it comes to process size and process technology.

 

Processor design:  Usually Intel will have a better processor design than its archrival AMD, though this is not always the case.  Intel and AMD were going neck to neck in terms of performance around 2003-2006.  Intel’s Prescott processors for example were disappointing since heat and power consumption was a much bigger problem than anticipated.  In the short run, there is some variation in how well Intel’s processor designs turn out.  In the long run Intel’s size will be an advantage when it comes to outspending competitors on R&D.

 

Process size:  Process size refers to how small processor parts can be made.  Being a node ahead in process size means that a semiconductor manufacturer can cram twice as many transistors onto the same area of silicon.  Usually the extra transistors can be used to double performance.

 

see http://www.10stripe.com/articles/what-does-process-size-mean.php

 

Process technology:  Intel was ahead of its competition in implementing high-K dielectrics and finFET technology (Intel refers to their finFET variation as “Tri-Gate”).  What this boils down to is that these technologies make processors better in performance and/or power consumption.

 

My tech background is mostly in programming programming Photoshop plug-ins.  I am not an expert in semiconductor technology by any means (I just Google this stuff).  However, it seems obvious to me that Intel has an ‘unfair’ advantage when competing against its competitors.  Historically, it has almost always been a step ahead in terms of process size and process technology.  Currently, Intel is shipping 22nm parts (with Tri-Gate and high-k dieletrics) while competitors are shipping 32nm (no Tri-Gate/finFET, some fabs have high-k dielectrics).  Some companies are shipping 28nm parts, which are a half-node between 22nm and 32nm.  Intel may be 3-4 years ahead in implementing finFET technology.

 

Here is a chart showing Intel’s share price versus AMD’s… this is Intel’s moat at work:

 

http://glennchan.files.wordpress.com/2012/09/intel-versus-amd.gif?w=476&h=296

 

Where Intel may experience growth (or lose market share)

 

Desktop/laptop/netbook:  Right now, Intel has a historically higher market share against AMD than in the past.  Reversion to the mean could occur.  In the long run, I would expect that the trend in the chart above will continue.

 

Servers, high performance computing:  This market is a little different than the desktop market since servers tend to be single purpose.  This means that the x86 instruction set (which only Intel and AMD control) is not that important.  Unlike the desktop market, the x86 instruction set does not protect Intel and AMD in these specialized markets.

 

Intel management should be congratulated as it has taken away a lot of market share from RISC-based processors (IBM’s Power, SGI, Sun’s SPARC, etc.).  In the past, the RISC technology/approach to processor design was superior since it led to increased performance.  (As I understand it) Intel’s processors actually implement RISC internally and have to waste transistors on converting x86 instructions to RISC(-like) instructions.  Nowadays this overhead is no longer an issue since transistor counts are so high that the overhead is negligible.

 

Smartphones:  Intel has practically no market share in smartphones right now.  This market is dominated by products based on the ARM instruction set.  I don’t believe that the instruction set will be a big problem for Intel as it is not impossible for handset manufacturers to switch to Intel’s x86 instruction set.  (In the past, Apple switched from powerPC processors to Intel processors.  The technical barriers are minor and easy to overcome.  The switch went smoothly, though some Mac users had to wait a few months for updated software.)  The Xolo smartphone demonstrates that it is not difficult for Android phones to use an Intel x86 processor.  There are a few games where the Intel processor is slower due to the emulation of the ARM instruction set.  However, I don’t believe that this will be an issue in the future as developers will compile a version of their games for x86/Intel (very easy to do).

 

There is a misconception that Intel processors are inferior to ARM-based products due to power consumption.  This review of the Xolo smartphone shows that Intel’s Medfield chip has around the same power consumption (and also performance) as its competition.  I believe that Intel will dominate this field as its chips will have advantages in power/price/performance due to Intel’s advantages in fabrication.  Intel’s lead in process size and in implementing finFET will allow its processors to have lower power consumption.  The Medfield chip was manufactured on a 32nm process without finFET.  Intel will gain ground once its moves production to its best fabs.

 

However, the smartphone market might only turn out to be a $10B market*.  In the year ended 2011 Intel made $54B.  Smartphones may not add substantially to Intel’s profits.  (*This Strategy Analytics blog post states that the smartphone processor market was $7.9B in 2011.  I believe that it is reasonable for the smartphone market to grow to $10B in the future.)

 

Intel may have some difficulty getting Apple to adopt its smartphone processors.  Apple’s strategy has been to restrict the variety of hardware in Apple smartphones.  This makes it much easier for developers to make smartphone apps.  (Some game manufacturers no longer make games for Android as it costs more to develop for, Android users buy less games, and Android users require more technical support.)

 

Tablets:  This will likely be a similar situation to smartphones.

 

Graphics, GPGPU:  In budget applications, Intel competes with AMD as they both sell processors with integrated graphics.  Intel’s products tilt towards lower cost and/or faster CPU performance at the expense of inferior graphics (e.g. worse at playing 3D games).  Intel may have difficulty doing higher-end graphics as it is not so easy to make good software drivers to go along with the hardware.

 

In the past, Intel had an experimental Larrabee project (Wikipedia) which tried to make a high-end graphics chip/GPU that could also be used for GPGPU purposes (Wikipedia).  This project was mostly a failure.  The outcome of the Larrabee project has morphed into the Knights Corner / Xeon Phi coprocessor (which I don’t think will be a huge market for Intel) and will not be a GPU.

 

Intel may have difficulty breaking into the high-end graphics market, which is the traditional bread and butter of ATI/AMD and Nvidia.

 

FPGAs:  This is a market dominated by Xilinx and Altera (89% market share combined).  Intel has tried to enter this market in the past and failed.  It will not be easy for Intel to break into as Intel would have to develop really good FPGA design software (this is Xilinx and Altera’s moat).  GPGPUs will eat away at the FPGA market though as GPGPUs are better at some applications than FPGAs.

 

Back to the bigger picture

 

Historically, Intel has grown revenues at a rate of several percent a year.  Gurufocus shows Intel’s growth to be 8.6%/yr per share over the past 10 years.  Going forward, I expect revenues to grow alongside the growth of the computing industry.  On top of that, Intel will likely slowly expand into new markets.  Historically, it has taken Intel a while to expand into new markets.  Keep in mind that it had to focus on fighting AMD for dominance of the desktop PC market and faced very strong competition in the server market.  Intel has failed in the FPGA and high-end graphics markets.

 

I don’t think that one can be too accurate in predicting Intel’s future growth.  However, my best guess would be that Intel will continue its historical rate of growth.  To me, it is reasonable to assume that Intel will slowly encroach onto new markets.  A lot of these markets exist in the first place because they serve a niche that the x86 desktop does not fill; that’s why Intel/AMD haven’t wiped out these markets in the first place.  Intel’s existing markets will also grow due to developing countries increasing the penetration of computers (desktops, laptops, servers, etc.).  It will also grow as people figure out new applications for computer hardware as it becomes more powerful, the Internet gets faster and more pervasive, and software tools continue to lower development costs.

 

Smartphones, tablets, and cloud computing are hot new areas but they may not be large markets for Intel.  If I am wrong, then Intel shares will have additional upside.

 

Moore’s Law reaching its limits

 

Moore’s law predicts that transistor counts will double every 18 to 24 months.  Historically, this has meant that performance doubles around every 2 years.  However, processors will not get faster at their historical rate.

 

    Heat limitations mean that we have hit a wall in terms of clock speed.  This is forcing processor manufacturers to use multiple cores to increase performance.  Unfortunately, doubling the number of cores does not always double performance.  One of the problems is Amdahl’s Law.  It is likely that Amdahl’s Law will kick into place for commercial software.  Making programs completely parallel will often be too costly (parallelism is hard).

    Eventually, we will not be able to double the number of transistors every 2 years.  Historically, we have only been able to see a decade out and people always predict the imminent end of Moore’s Law.  Yet Moore’s Law keeps on continuing.  However, there are some very real limitations to the current approach.  We cannot have processor parts that are smaller than one molecule.  Before that, there are other technical challenges imposed by the laws of physics (e.g. electron tunneling).  Moore’s Law may end as early as 2022.

 

I believe that the rate of performance increase will start to slow down in the future.  If that rate slows down to a trickle, Intel will have a problem as its competitors will start to catch up in terms of performance.  Eventually, the business will likely morph into a commodity business where the lowest-cost players have an advantage.  (The x86 license will give Intel and AMD a very minor advantage in the desktop market.)  This will be terrible for Intel as its 20%+ profit margins will become a fraction of what it is.

 

Financial management at Intel may be merely average

 

During the tech bubble, Intel was spending cash on buying back shares at astronomical prices under Craig Barrett’s tenure.  (Barrett named Paul Otellini, who is the current CEO.)

 

Intel has a defined benefit pension plan.  I’m not a fan of these types of pensions as the liability can push companies into bankruptcy (and even the pensioners get screwed, e.g. Nortel).

 

Intel’s acquisition of McAfee was arguably a bad one.  The main reason for the acquisition is McAfee’s Deep Defender product (review/overview), which works alongside Intel processors to detect rootkit viruses (these viruses are very difficult to detect with a virus scan).  Intel bought McAfee not knowing if there is merit to Deep Defender’s approach (it wasn’t tried on a commercial scale when Intel made the purchase and there are other methods of detecting rootkits).  Another caveat is that Deep Defender ties users to purchasing Intel chips with the premium VPro feature.  IT departments may not want to be tied to a single vendor.

 

On the good side, Intel is using its excess cash to buy back shares and pay dividends.  Considering Intel’s current P/E, the share buybacks make a lot of sense.  Also, Intel has conservative levels of debt and I like that it has taken on lower risk debt that is due far in the future with reasonable interest rates (e.g. some of Intel’s debt is in 30 year bonds).

 

Intel’s P/E may be slightly inflated

 

The cost of Intel’s cross-licensing agreement with Nvidia will be amortized over 17 years even though the cross-licensing agreement expires in 6 years.  From the 10-K for YE2011:

 

    In January 2011, we entered into a long-term patent cross-license agreement with NVIDIA. Under the agreement, we received a license to all of NVIDIA’s patents with a capture period that runs through March 2017 while NVIDIA products are licensed to our patents, subject to exclusions for x86 products, certain chipsets, and certain flash memory technology products. The agreement also included settlement of the existing litigation between the companies as well as broad mutual general releases. We agreed to make payments totaling $1.5 billion to NVIDIA over six years ($300 million in each of January 2011, 2012, and 2013; and $200 million in each of January 2014, 2015, and 2016), which

 

    resulted in a liability totaling approximately $1.4 billion, on a discounted basis. In the fourth quarter of 2010, we recognized an expense of $100 million related to the litigation settlement. In the first quarter of 2011, we recognized the remaining amount of $1.3 billion as licensed technology, which will be amortized into cost of sales over its estimated useful life of 17 years.

 

(*I am no lawyer and may have read this incorrectly.  The patent cross license agreement is also on Intel’s website.)

 

Berkshire Hathaway buying IBM and selling Intel

 

I don’t know why Berkshire did this.  I do not consider IBM to be in my circle of competence as I don’t understand the IT business.  (In the processor business, I can tell you that IBM lost the Mac business and some of its server and supercomputer business to Intel.)  Warren explains his IBM purchase in this CNBC transcript.  At ~$10B, Warren’s position in IBM is rather sizable.

 

Maybe the smarter move is to buy IBM instead of Intel.  I do not know.

 

What I plan on doing

 

I will hold onto Intel on the expectation that its share price goes up on gaining market share in smartphones and tablets.  I don’t want to deal with Moore’s Law coming to an end so I don’t see myself holding onto Intel for the really long term.

 

*Disclosure: Long Intel.  No position in IBM.

[Guest rimm_never_sleeps]

intel is super dependent on people buying PC and laptops. it has yet to crack the mobile market. that's a huge issue. Also arm has designs on Intel's notebook and small form factor markets. I hated the Mcafee acquisition. It made no sense and still makes no sense. it was expensive. their acquisitions have not been good over the years. they made a number in the late 90s that had to be totally written off. they manage the operations well, but got caught flat footed by the mobile revolution. I would buy it around $20. I think msft has a better business that is about as cheap. btw AMD is even more poorly positioned than Intel. I think a long intel short amd trade might make sense.

 

Intel was bought by one of the two new guys at Berkshire. I believe he became worried about Intel's mobile position (they were really late getting a decent chip out) and the strength of ARM's grip on mobile devices. Don't know this for a fact. just my guess.

[FrankArabia]

thanks for the responses.

 

I think most of us who are long or bullish on INTC have the same reasoning: big company that will eventually come around, PCs are not dying, and Intel is cheap with good dividend yield.

 

I'm not a technology guy at all, but I think a lot of people are worried that PCs are going into extinction or something. At 10x p/e it doesn't add up.

[ItsAValueTrap]

I think Microsoft will have a *much* harder time in the mobile market.  Microsoft's advantage is:

a- The Microsoft software ecosystem.  Development tools (Visual Studio is so slick), legacy software, games, widest selection of software, etc.

b- Great software is difficult to duplicate.  This is not a problem where you can simply throw a lot of programmers at it... it doesn't work that way.  Otherwise software would be a commodity business unless you were protected by patents.

 

None of these advantages help Microsoft in smartphones (e.g. Windows CE never really took off, Windows Phone 7 never really took off, etc.) because Microsoft is not the incumbent player.  They also don't help Microsoft in servers, which is also a major market.

 

-------

In the long run, I see Intel facing problems when processors run into limits with Moore's Law.  Eventually we cannot beat the laws of physics.  15-25 years from now is my guess.

 

In the long run, Microsoft constantly faces competition.  Shifts in technology can be swift and sudden.  The dominant player can quickly lose its position... look at ICQ and Myspace, companies that benefited from network effects.  Having great software is a moat but not a great one.

There was a time when Microsoft was scared of Java because it might turn out to be a really good cross-platform development tool.  This did not turn out to be the case.  Java is a good tool but does not do cross-platform user interfaces well and Java programs tend to be slow.

 

Right now Microsoft doesn't have strong competition to its two main cash cows (operating systems and Office).  Ubuntu, Mac OS, Open Office, and Google Docs aren't that strong compared to Microsoft's offerings.  Open Office is interesting though since it does 90% of what Office does and is free.

 

I see Microsoft as having limited growth compared to Intel but more likely to thrive in the long run.  Intel will one day become a shadow of itself.

[Guest valueInv]

I would check your facts.

I don’t believe that the instruction set will be a big problem for Intel as it is not impossible for handset manufacturers to switch to Intel’s x86 instruction set.  (In the past, Apple switched from powerPC processors to Intel processors.  The technical barriers are minor and easy to overcome.  The switch went smoothly, though some Mac users had to wait a few months for updated software.)

Switching a processor architecture is a huge deal. Apple went through a massive effort, they just didn't expose the complexity.

 

 

 

There is a misconception that Intel processors are inferior to ARM-based products due to power consumption. 

That is no misconception. They have been inferior, but the newer processors are getting close. However, ARM has released its next generation architecture that is significantly better.

 

However, the smartphone market might only turn out to be a $10B market*.  In the year ended 2011 Intel made $54B.  Smartphones may not add substantially to Intel’s profits.  (*This Strategy Analytics blog post states that the smartphone processor market was $7.9B in 2011.  I believe that it is reasonable for the smartphone market to grow to $10B in the future.)

Therein lies the rub. As more usage goes to mobile, people buy fewer PCs. The pricing on smartphone processors are lower, so even if Intel wins the smartphone market, its revenue won't replace that of desktop.

 

Intel may have some difficulty getting Apple to adopt its smartphone processors.Tablets:  This will likely be a similar situation to smartphones. 

Apple is the worlds biggest chip buyer.

 

If that rate slows down to a trickle, Intel will have a problem as its competitors will start to catch up in terms of performance.  Eventually, the business will likely morph into a commodity business where the lowest-cost players have an advantage.  (The x86 license will give Intel and AMD a very minor advantage in the desktop market.)  This will be terrible for Intel as its 20%+ profit margins will become a fraction of what it is.

I doubt it. There are many ways to increase chip performance other than transistor size such as number of cores, asynchronous techniques etc. The point is performance does not equal clock speed. In fact, performance hasn't even been that critical in many markets, power consumption has been the bigger issue. That is why Intel lost share to ARM.

 

I don’t know why Berkshire did this.  I do not consider IBM to be in my circle of competence as I don’t understand the IT business.  (In the processor business, I can tell you that IBM lost the Mac business and some of its server and supercomputer business to Intel.)  Warren explains his IBM purchase in this CNBC transcript.  At ~$10B, Warren’s position in IBM is rather sizable.

IBM is one of the most diversified tech companies. That means that it is not as vulnerable to tech cycles at Intel is. If Intel loses the desktop/server market, pretty much everything is lost. IBM can easily survive the loss of a few of its businesses.

 

You fail to address two points.

1, The possibility to a shift to lower power, cheaper processors even on the server side. This would mean ARM or Atom. With Atom, the margins are lower. Look at companies like SeaMicro. What is AMD planning to do after buying them and hiring Jim Keller?

2, The shift from PCs to laptops tablets:

http://techcrunch.com/2012/09/10/apple-ipad-corporate-pc-market-growth/

http://gigaom.com/2012/09/10/the-shift-as-tablets-surge-pcs-lose/

 

There is no if, its already happening. The key point is the release of Windows 8. This should be driving big sales this quarter with people excited to upgrade. Instead the opposite is happening, Intel guided down. That is a big, big red flag.

 

[ItsAValueTrap]

There are many ways to increase chip performance other than transistor size such as number of cores

The number of cores is related to transistor count.  If you can't pack transistors more densely, then the only way of increasing the number of cores is to make the die size bigger.

 

The problem with a bigger die size is:

A- You use more silicon, which raises cost.

B- Yields go down, which raises cost even more. 

 

There comes a point where it doesn't make sense to use a really large die.  You could instead use 2 (or more) processors working together in some sort of parallel computing solution.

 

IBM is one of the most diversified tech companies.

I don't believe that Warren is a fan of diversification for skilled investors.  If you read the CNBC transcript he gives his reasons.

 

As more usage goes to mobile, people buy fewer PCs.

That's debatable right?

 

I see smartphones as being complementary to the desktop/laptop, not as a replacement.  Ditto for tablets.  These devices sacrifice screen size and a real keyboard (and mouse) in exchange for portability and being handy.  They are different markets in my opinion.  Personally I believe that it's a misconception that smartphones and tablets are going to replace the desktop/laptop.  (Personally if all my computing devices were destroyed, I would just buy a desktop and a dumbphone.  Maybe I am a Luddite even though I know C++.  But at least I use email... unlike the highly regarded computer scientist Donald Knuth.)

 

Let's see how desktop/laptop sales do in the future.

[FrankArabia]

What I don't really get is why people are so focused on the immediately future (3-6 months). Management needs time to adjust and so long as they're financially stable, there shouldn't be a huge worry. However, given the current valuations, you figure INTC is on the verge of continual profit declines.

 

Yes INTC did guide down and I expect their earnings to take a hit even out to 2013. However, the problems they're encountering is what the people who are working at Intel are trying to overcome. They have all of the reasons to win (mostly money, scale, know how, and lets face it, shareholder pressures), but they're a big ship which takes time to turn.

 

People aren't comfortable unless INTC starts to dominate the mobile market or get their toe in, but when that happens, do you think INTC will trade at 10x cash?

 

This whole thing about PCs going into extinction? Not so sure about this but I am willing to admit the market will see slower growth over the next few years. I think people will continue to use PCs along with tablets/netbooks/smartphones. We're going to see more usage of technology as has been the case over the last 25+ years.

 

As to why BRK sold INTC, not so sure and it certainly shouldn't matter. One thing is, IBM is more "stable" and their valuation is not excessively above INTC. There appears to be less risk.

 

 

[berkshiremystery]

your thoughts on this?

 

I got in at $24.75 and $24.00.

 

I think we're in for some pain in the near term but overtime they should gain momentum on the mobile side as the PC side takes off from IT refresh.

 

You might want to have a free peek into iNTC @ ValueLine:

http://www3.valueline.com/dow30/f4731.pdf

 

The 30 Dow stocks are free on their site. Cheers!

http://www.valueline.com/dow30/

 

[tng]

People forget that the demand for computing is going up. And most real computing is done on Intel chips. For example, 5 minutes ago I typed two lines into a terminal and 100+ Intel CPUs will be running hot for the rest of the day. My colleague just placed an order to buy six more very expensive servers containing lots of Intel chips. There will always be demand for "desktop" processing, and that demand is going up. Stuff like computerized trading on the stock exchange, Apple's Siri, Google's artifical intelligence algorithms to put ad's on webpages, etc all require some serious computing power. The casual computer user who walks around with his smart phone doesn't realize how much computing is done all around him to provide him with services he uses all the time. I would not be surprised if in a few years, every cable set top box will be a full fledged computer. If Intel goes down some more, it will start to approach a price where you don't need growth for it to still be an attractive stock. The growth is currently in mobile, but I don't think there is any big threat to Intel's business of making very fast, hot, power burning processors that are only suitable for being plugged into the wall.

 

Intel decided to pour all their money into making chips that ran faster and faster, without regard for power and heat because they were targeting the enterprise business and they expected everybody to be on desktops. They didn't see the mobile trend happening, so ARM had a vastly superior product because they were the only ones focusing on low power. Now that Intel is pouring all their money into low power, how long is ARM going to be the superior product? I don't think ARM has any real advantage over Intel other than that they started researching low power chips earlier. But those advantages narrow very quickly.

[kevin4u2]

Perhaps this quote made by the CEO of Intel, Paul Otellini, during the Q4 2010 Conference call will will perk some interest.

 

In 2010, total traffic crossing the internet was roughly 245 exabytes. This is greater than all the previous years combined. Over the next five years, a billion more people will join the global online community with 15 billion new connected devices including PCs, tablets, embedded devices and smart TVs. We estimate this will increase the data footprint across the Internet to over 1,000 exabytes. More people, more devices, more usages.

 

 

[Liberty]

http://arstechnica.com/gadgets/2012/09/intels-haswell-cpus-will-fit-in-everything-from-tablets-to-servers/

[berkshiremystery]

Why is Berkshire Dumping Intel?

Sep. 14th, 2012

http://wallstcheatsheet.com/stocks/why-is-berkshire-dumping-intel.html/?ref=YF

 

<snip>...

According to National Association of Insurance Commissioners data compiled by Bloomberg, Berkshire purchased 11.5 million shares of California-based Intel for an average price of $22 each throughout the second half of 2011. The firm sold its shares through May 8 of this year, for an average price of $27.25 and a total profit of $60 million.

...</snip>

 

 

http://holdings.nasdaq.com/asp/OwnerPortfolio.asp?sHead=&HolderName=BERKSHIRE+HATHAWAY+INC&CIK=0001067983&Selected=&SortBy=name&Descending=A

 

 

 

 

[Liberty]

http://arstechnica.com/information-technology/2012/09/intel-researchers-put-wifi-inside-the-processor-that-is/

[berkshiremystery]

http://arstechnica.com/information-technology/2012/09/intel-researchers-put-wifi-inside-the-processor-that-is/

 

Liberty,...

 

thanks for posting,...

seems some interesting new idea to put WiFi directly inside a CPU's.

I knew about Moore's Law" through all those years, but the term "Moore's law Radio" is totatally new.

 

<snip>...

At the Intel Developer Forum in San Francisco, Intel Chief Technology Officer Justin Rattner unveiled a pair of technologies coming out of Intel Labs that will overcome many of the size and power limits that have stood in the way of integrating radio technology more tightly with computers and other digital devices. The first, what Intel calls the "Moore's Law Radio," is a complete WiFi transceiver on a 32-nanometer scale silicon chip; the second, called Rosepoint, is a complete system-on-a-chip that integrates two Atom processor cores with a digital WiFi transceiver....</snip>

 

------

 

I would everybody encourage to read "The Singularity Is Near: When Humans Transcend Biology" by Ray Kurzweil, probably the best book ever written about Moore's Law and the exponential growth of technology.

 

The Singularity is Near - Wikipedia.org

http://en.wikipedia.org/wiki/The_Singularity_Is_Near

 

http://upload.wikimedia.org/wikipedia/en/2/2a/The-Singularity-Is-Near.jpg

 

http://www.amazon.com/The-Singularity-Is-Near-Transcend/dp/0143037889/

 

Ray Kurzeil - Wikipedia.org

http://en.wikipedia.org/wiki/Ray_Kurzweil

 

 

 

[Liberty]

I would everybody encourage to read "The Singularity Is Near: When Humans Transcend Biology" by Ray Kurzweil, probably the best book ever written about Moore's Law and the exponential growth of technology.

 

The Singularity is Near - Wikipedia.org

http://en.wikipedia.org/wiki/The_Singularity_Is_Near

 

http://upload.wikimedia.org/wikipedia/en/2/2a/The-Singularity-Is-Near.jpg

 

http://www.amazon.com/The-Singularity-Is-Near-Transcend/dp/0143037889/

 

Ray Kurzeil - Wikipedia.org

http://en.wikipedia.org/wiki/Ray_Kurzweil

 

I've read it. It is certainly interesting to extrapolate out non-intuitive exponential curves for technological progress, though I'm not quite sure that all of Kurzweil's predictions will take place in that timeframe since many depend on software/math breakthroughs and not just size-of-components and power-of-computation advances. But certainly thought-provoking stuff worth reading, and even if a small fraction of what he predicts happens anytime soon, the world will be very different.

 

 

[jjsto]

Yeah, good book.  Now I just need to figure out how unleash the same forces so a singularity will occur in my portfolio :)  Here is an old charlie rose clip:  http://www.charlierose.com/view/interview/672 

[west]

thanks for the responses.

 

I think most of us who are long or bullish on INTC have the same reasoning: big company that will eventually come around, PCs are not dying, and Intel is cheap with good dividend yield.

 

I'm not a technology guy at all, but I think a lot of people are worried that PCs are going into extinction or something. At 10x p/e it doesn't add up.

 

Frank, please keep in mind that Intel is a cyclical business, so P/E isn't as useful for valuing the company as P/E in a non-cyclical business.  If you look at the ValueLine that berkshiremystery posted, you'll see the earnings of Intel are all over the place.  They earned $1.40/share during 2005, but then only earned $0.86/share in 2006.

 

I'm not saying Intel's a bad buy though.  Just don't judge it based off of one year's earnings or P/E ratio.  Maybe use normalized earnings or some alternative ways of valuing them.

 

The book Value Investing by Bruce Greenwald actually has a chapter where he uses his rough-guide valuing methodology to come up with a value for Intel.  I'm guessing a lot of what he wrote then still holds true today, so you may want to check it out.

 

Here's a good quote about buying cyclical businesses:

 

"Buying a cyclical after several years of record earnings and when the P/E ratio has hit a low point is a proven method for losing half your money in a short period of time." - Peter Lynch

[mikazo]

As a software developer by profession, I can attest that desktop computers and servers are not going away. It would be impossible to develop software on a tablet or a smartphone. You need a powerful desktop computer that can compile quickly, run multiple virtual machines, etc. Same for build servers, source control servers, mail servers, IM servers, testing setups, etc. All of that requires machines with powerful processors, of which Intel is the main producer.

 

Software development is growing too, because all these tablets and smartphones that are part of the mobile craze need smarter servers, routers, content providers, etc. to handle the growth.

 

Regarding Moore's Law, high-end processors topped out around 3-4 GHz clock speed ages ago. It's all about more cores and more parallelization now. When I looked into Intel last year, I remember reading somewhere about them developing tools to help make it easier for software developers to write applications that take advantage of parallel processing. It's a hard problem to deal with, but it can be manageable.

 

Just my abstract two cents on Intel's growth opportunities.

[Palantir]

Yeah but developers are a small group of people, and not the broader consumer base. Consumers could in the future be limited to thin clients.

[bargainman]

Yeah but developers are a small group of people, and not the broader consumer base. Consumers could in the future be limited to thin clients.

 

And all those clients are going to do what?  ..

 

Interact with servers..  Which is what programmers are going to program too.  Data centers are going to grow and grow.  Processing power for video and other things like research, ecommerce, etc is just growing and growing.  Emerging markets are growing PCs.  There's a reasonable amount of attrition with current data centers which require constant updating. 

[Palantir]

Yeah but developers are a small group of people, and not the broader consumer base. Consumers could in the future be limited to thin clients.

 

And all those clients are going to do what?  ..

 

Interact with servers..  Which is what programmers are going to program too.  Data centers are going to grow and grow.  Processing power for video and other things like research, ecommerce, etc is just growing and growing.  Emerging markets are growing PCs.  There's a reasonable amount of attrition with current data centers which require constant updating.

 

It's true that the computing function will be outsourced to server farms, but my understanding is that these mega server farms will be far more efficient using chips due to economies of scale, hence the lower total demand.

 

To me it seems that Intel is being eroded in a large market and getting stronger in a smaller niche. Furthermore, couldn't a lot of these GPGU manufacturers also compete with Intel for space in centralized servers?

[ItsAValueTrap]

When I looked into Intel last year, I remember reading somewhere about them developing tools to help make it easier for software developers to write applications that take advantage of parallel processing. It's a hard problem to deal with, but it can be manageable.

It's a hard and nasty problem right?

 

Parallel processing has been around for a long time.  Some programs lend themselves easily to parallel processing and so performance will pretty much scale linearly with more cores (*as long as there are no bottlenecks).  Photo and video editing are like this, though right now not all programs are written for parallel processing.  It's pretty easy to do... I used to write photo software and I have no idea what a race condition is.  It's just that some people haven't bothered to do it yet.

 

Other programs don't scale so easily.  Making an algorithm parallel can be very difficult and time-consuming to do.  Making it parallel may also make it run a lot slower.

 

---

I don't think that the slowdown in performance increases is Intel's problem.  Intel will have a problem if it can no longer double transistor count.  After that, their competitors will catch up and their moat will begin to evaporate (!!!).

 

Here's what Gordon Moore has to say about Moore's Law (2005):

http://news.techworld.com/operating-systems/3477/moores-law-is-dead-says-gordon-moore/

[ItsAValueTrap]

I don't think it makes sense to do a thin client over the Internet.  The bandwidth costs will kill you... among other problems.  If your screen resolution is 1920x1080, you have to transfer all that data over the Internet.  And you can't compress that data as efficiently as video streaming sites.

 

This technology kind of exists now.  Play around with VNC.  It's slow and crappy.

 

2- Virtualization will actually result in higher capital costs I believe.  But I am not an IT guy at all.

http://www.brianmadden.com/blogs/brianmadden/archive/2011/10/05/desktop-virtualization-is-not-about-saving-money.aspx

 

2b- Historically, the cost of hardware has been coming down by about 2X every 2 years.  Even if virtualization does reduce hardware costs, I don't think it will be a problem for Intel.  We usually end up finding new applications for all the new processing power.

 

nicer-looking GUIs

ultrabooks / more power efficient processors

antivirus / running actual viruses or malware.  Some people have really slow computers because of all the crap that is running on it.

games

video editing

 

Though to be fair, many people don't need more processing power.  So we could arguably be at the point where not every consumer needs more processing power.

 

There are many business applications which need more processing power... I see those markets continuing to drive demand.