An Intel stock analysis shows that the company's years of investing in new chip technologies is now starting to pay off.
We'll get a progress report of sorts tomorrow (Tuesday) when Intel Corp. (Nasdaq: INTC) reports Q3 earnings.
That's despite unenthusiastic expectations for the Q3 Intel earnings.
For Q3, Wall Street forecasts Intel to earn $0.59 a share on revenue of $14.23 billion. That would be a 10.6% drop in EPS from the same period a year ago and a 2.2% decline in revenue.
But investors will need to look past these numbers. Any Intel stock analysis needs to recognize that the nature of the chip-making business means the impact of new strategic decisions often isn't felt for years.
Intel famously missed out on the mobile revolution and has paid the price in the past few years as PC sales have declined.
But Intel learned its lesson and several years ago set about developing new chip technologies targeted at computing's future - mobile, data centers (cloud computing), wearable tech, and the Internet of Things.
Now that strategy shift is on the verge of fruition, as more of the company's new chip technology finds its way into shipping products.
Over the past two years, the company has debuted these new chip initiatives, with two of the biggest coming this year.
As these new products gain traction among hardware makers, Intel's earnings will rise -- and the INTC stock price along with it.
Here's a look at those chip technologies and how they will boost Intel stock...
Intel has made moves to protect its market position where it's dominant while working to gain ground in the markets it had once neglected.
Instead of taking this business for granted, Intel made the bold move in April to acquire fellow chipmaker Altera Corp. (Nasdaq: ALTR) for $16.7 billion. This acquisition keeps Intel on the cutting edge of data center chip tech.
That's because Altera is a leader in field programmable gate array (FPGA) technology. FPGAs make chips customizable for specific tasks, making them faster and more energy-efficient. Both attributes are priorities in data centers. With FPGA on board, Intel preserves its position in this increasingly profitable area.
Skylake chips are faster with much better graphics capabilities and offer much longer battery life. With Skylake, PC laptops will get thinner and more powerful. Those same attributes also make Skylake an ideal candidate for tablets and especially PC/tablet hybrids such as Microsoft Corp.'s (Nasdaq: MSFT) new Surface Pro line.
For the PC market, Skylake brings improved graphics on par with offerings from rival Advanced Micro Devices (Nasdaq: AMD). Skylake also enables some flashy Windows 10 features, like face recognition. Add in INTC's lead in raw processor speed, and you have a recipe to maintain (or even improve) market position.
But the real opportunity here for growth is in hybrids. While the tablet market is declining, hybrid sales are rising. Hybrids with Skylake inside will outperform any comparable hardware with a rival chip.
Looking further down the road, Intel has plans to put Skylake technology into the large-screen smartphones known as "phablets." Any chunk of the smartphone market would be gravy for Intel, as it has very little presence there now.
Over the next couple of years, Skylake will add significant growth to Intel's bottom line.
Quark is a tiny, low-cost, low-power "system-on-a-chip" designed for a world in which most everyday objects come embedded with a chip that "talks" to other devices over a wireless network. Edison is a tiny, Quark-based computer that fits on an SD card - the same diminutive cards used by many digital cameras.
The installed base of IoT devices is expected to grow from 10 billion today to 30 billion by 2020. And research firm IoT Analytics sees Intel at the top of the list of companies reaping the most benefit.
Intel only gets 5% of its revenue from its IoT segment now. Research firm Trefis sees that doubling or better by 2022.
An entirely new class of memory that doesn't use transistors, 3D XPoint is 1,000 times faster than the memory in a smartphone. And the first chips are a robust 128 gigabytes.
Two ideal markets here are smartphones and tablets, which will thrive on the high capacity and speed. But 3D XPoint will find a market as solid-state drives (SSDs) in PCs.
NAND memory accounts for only 8% of Intel's revenue. But with just 7% of the market and a breakthrough new technology, NAND memory will become a key growth area for Intel in the years ahead.
So INTC stock has plenty of catalysts for the long term, whatever happens with the Q3 earnings.
"I think this is going to be a transition quarter," said Money Morning Defense & Tech Specialist Michael A. Robinson. "It still might be weak in the fourth quarter, but I think what we're seeing is that they're really beginning to gain traction. They're doing a good job of moving into growth areas."
Follow me on Twitter @DavidGZeiler.
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About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.