This Intel (Nasdaq: INTC) Strategic Move Is Paying Off Big

This year, 80% of the chips for new PCs will be produced in... Silicon Valley... Taiwan... China's Shenzhen Province... South Korea...?

Wrong on all counts.

More and more of today's chip makers, including Intel Corp. (Nasdaq: INTC), the company I want to tell you about today, are locating their manufacturing facilities a bit off the beaten path these days - in one of the world's fastest-growing economies - and a nation that some of you may find controversial.

But my job is to take you wherever the biggest innovations are being made so that we can find the biggest opportunities.

So today I'm going to show you exactly where so many of the world's top tech companies are headed.

Intel Inside... Vietnam

Nasdaq: INTCMany investors might be tempted to steer clear of Vietnam because of the way the U.S. conflict ended there and the political upheaval it caused back home.

As someone who's kept an eye on this controversial nation for more than 40 years, I believe that's a lot of noise. And you know what Rule No. 2 says about that - "separate the signal from the noise."

Vietnam is an economy that boasts impressive economic growth and that offers tech investors many hefty and growing opportunities.

Gross domestic product in 2014's third quarter grew 6.19% from a year earlier. And for the first nine months of last year, industrial output grew 6.7%, and exports rose 14.1% from a year earlier to $109.6 billion.

Many of those exports are the microchips that we so often invest in here at Strategic Tech Investor.

As I said above, 80% of this year's central processing units (CPU) for PCs will be made not just in Vietnam, but in a single location - Saigon Hi-Tech Park. The sprawling facility sits just off Hanoi Highway less than 10 miles from Ho Chi Minh City, the nation's capital.

The plant that will produce all these chips is owned by Intel Corp. (Nasdaq: INTC).

Intel is not only the world's leading PC chip maker, with its flagship Haswell CPU product; it's also long been a leader in Vietnamese tech production. Intel Vietnam's CPU line is the latest addition to a major testing and production plant that broke ground back in 2006.

The plant is rapidly ramping up production. In early 2014, Intel opened a new line for another of its signature products, the system-on-a-chip (SoC). That unit is making chips for smartphones and tablets and was on pace to make roughly 40 million SoCs last year.

Intel started up its Vietnam operations back in 2006 with an investment of $300 million. The company more than tripled that amount to $1 billion just one year later.

Locating in Vietnam was a good strategic move for Intel - one that is really starting to pay off.

Here's how...

Roughly the size of six football fields, Intel Vietnam began production in only 2010. And in 2014, it already accounted for a stunning $1.8 billion in exports.

Intel is taking advantage of Vietnam's production and labor costs, much lower than those in South Korea and China.

Vietnamese labor costs are about one-third those of China. And Vietnam borders China, giving Intel and other tech firms with operations there easy access to the world's largest market.

No wonder that as of the middle of 2014, the latest period for which there are statistics, Vietnam boasted some 16,300 foreign direct investment projects worth a combined $238 billion.

The investors come from 100 countries in all, and several are big Asian tech firms following Intel's lead. These include:

  • Samsung Electronics Co. Ltd. (OTCMKTS: SSNLF): The South Korean giant recently announced plans for a new $3 billion smartphone operation. It joins a $2 billion Samsung plant already located there and employing 16,000 people.
  • LG Electronics: As part of a $1.5 billion investment, the South Korean company is building a 4.3 million-square-foot assembly plant to make televisions, appliances, and smartphones.
  • Panasonic Corp. (OTCMKTS ADR: PCRFY): The Japanese electronics giant and lithium-ion battery manufacturer is opening a new unit to expand production of wiring devices and circuit breakers.

Why Intel (Nasdaq: INTC) Rules

While those three Asian companies are interesting, Intel is the best way to invest in Vietnam's growth and burgeoning tech sector.

The Santa Clara, Calif.-based company remains a dominant global supplier of semiconductors, with facilities in China, Israel, Ireland, and Malaysia.

Moreover, Vietnam's low-cost structure boosts Intel's bottom line at a time when PC sales have stabilized. Gartner notes PC sales will hit a two-year break-even point at the end of 2015, when the forecasting firm is projecting global shipments of 316.7 million PCs.

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On Jan. 15, Intel reported revenue of $14.7 billion for the fourth quarter, meeting its own guidance. The company's gross profit margins came in better than expected. While not spectacular, it was a solid report.

And don't forget: Intel is revamping operations to focus on the high-growth sectors of mobile and wearable tech.

In mobile, Intel is particularly focused on low-power, high-performance chips for tablets. The company wants to sell 40 million a year, four times what it sold in 2013.

With wearable tech, a market growing by more than 70% a year, Intel has unveiled two devices. One is a pair of earbuds for fitness tracking and the other is a "smart" headset that works as a voice-controlled digital assistant.

With a market cap of $181 billion, the stock trades at $37.55 a share. It has operating margins of 27% and a return on equity of 19%. Last year, it generated more than $8 billion in free cash flow.

This helps explain why Intel stock gained 46% over the past year. That's more than three times the Standard & Poor's 500 Index's 13.4% gains in the period.

Longtime readers of Strategic Tech Investor have done very well with Intel. Since we first recommended it in July 2013, you've made 50% gains on your shares.

Thus, with Intel we get the best of both worlds. As I've been saying, this is a savvy play on fast-growing Vietnam and its budding tech industry.

But it's also a rock-solid investment in an iconic American company that is benefitting from long-term demand for semiconductors in PCs, tablets, and smartphones.

Add it all up and you have the makings of an excellent foundational play.

With so many factors pushing it forward, Intel is a great stock to hold for the long haul.

The Tech Industry Has Never Been More Exciting for Investors... In 2014, our Tech Expert Michael A. Robinson covered more than 100 ways to make huge profits from tech stocks. And he'll share a lot more tech investing ideas in 2015. But first, he answers some of your biggest and most important questions about investing in tech...

 

About the Author

Michael A. Robinson is a 36-year Silicon Valley veteran and one of the top tech and biotech financial analysts working today. That's because, as a consultant, senior adviser, and board member for Silicon Valley venture capital firms, Michael enjoys privileged access to pioneering CEOs, scientists, and high-profile players. And he brings this entire world of Silicon Valley "insiders" right to you...

  • He was one of five people involved in early meetings for the $160 billion "cloud" computing phenomenon.
  • He was there as Lee Iacocca and Roger Smith, the CEOs of Chrysler and GM, led the robotics revolution that saved the U.S. automotive industry.
  • As cyber-security was becoming a focus of national security, Michael was with Dave DeWalt, the CEO of McAfee, right before Intel acquired his company for $7.8 billion.

This all means the entire world is constantly seeking Michael's insight.

In addition to being a regular guest and panelist on CNBC and Fox Business, he is also a Pulitzer Prize-nominated writer and reporter. His first book Overdrawn: The Bailout of American Savings warned people about the coming financial collapse - years before the word "bailout" became a household word.

Silicon Valley defense publications vie for his analysis. He's worked for Defense Media Network and Signal Magazine, as well as The New York Times, American Enterprise, and The Wall Street Journal.

And even with decades of experience, Michael believes there has never been a moment in time quite like this.

Right now, medical breakthroughs that once took years to develop are moving at a record speed. And that means we are going to see highly lucrative biotech investment opportunities come in fast and furious.

To help you navigate the historic opportunity in biotech, Michael launched the Bio-Tech Profit Alliance.

His other publications include: Strategic Tech Investor, The Nova-X Report, Bio-Technology Profit Alliance and Nexus-9 Network.

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