Intel's Winning Streak Should Continue

Jeremy Glaser: For Morningstar.com, I'm Jeremy Glaser.

Intel's winning streak continued as they capped off a record year. I'm here with senior analyst Andy Ng to take a look at their fourth-quarter results and see what the future might hold for Intel.

Andy thanks for taking the time today.

Andy Ng: Sure.

Glaser: So, let's just take a quick look at the fourth-quarter results. What were some of the key growth drivers for Intel in the quarter?

Ng: Intel reported revenue of $11.5 billion and really the strength was from continuation of good, healthy, enterprise spending. Really, their strongest product line were their server processors, as companies continue to upgrade their computer infrastructure.

Glaser: Is this a trend that they think is going to continue or are we seeing just a replacement of stuff that people didn't do in the recession, and then it's going to level off?

Ng: Well, I think that it's a combination of both; some companies have been putting it off. But Intel still appears to be pretty optimistic about the near future, and also, they have some new products that are coming out this year. Their Sandy Bridge processors, which should help spur continued upgrades by corporations.

Glaser: If corporations are out there spending, what about the consumer? Are people out there buying laptops, or is there still a lot of caution?

Ng: Intel hopes that with the Sandy Bridge, there will be some pickup in consumer spending, but the firm did note in its commentary that the consumer in general has stayed weak since the middle of 2010.

Glaser: Now, if we think about the future for Intel, one of the big announcements from Microsoft at the Consumer Electronics Show is that the next version of Windows is going to run not only on the x86 processors made by the likes of Intel and AMD, but also on ARM processors that are found commonly in tablets or smartphones. What kind of impact could this have on Intel that Microsoft Windows would able to run on chips other the than the ones that Intel makes?

Ng: Well, it seems like Microsoft's announcement is focused on tablets. ARM currently dominates the processors that are in tablets, and for the time being, we don't really think that you're going to see an ARM-based computer anytime soon.

But, for Intel, they do have chips that they hope will help to get them into tablets. They have these Atom chips that are coming out later this year that they are aiming towards tablets, and you have to keep in mind, although Intel's tethered to Windows in the PC space, in the table space, they're somewhat agnostic. The Atom chips will support the Google Android platform and also the MeeGo, a joint venture between Intel and Nokia.

Glaser: Is Microsoft saying by doing this that they think the Atom processor is never really going to be appropriate for broad tablets, that they're never going to get the power low enough, or do you think this is just them trying to cover all of their bases?

Ng: Well, for the time being, Intel hasn't had much success in the smartphone space, and they don't really have any tablet products yet. So, I think it's Microsoft covering all their bases. But you have to keep in mind, Intel's Atom although it is not very competitive right now in the tablet and smartphone areas, they've being working really hard to get the chip to be competitive with ARM. Really it's the power consumption of ARM chips that make them suitable for these portable devices because they're much more power efficient. So, Intel is working to get there, and we think that ultimately it will become an opportunity for Intel.

Glaser: And finally, looking out over 2011, what's your take on how Intel is going to perform, and do you think the stock looks attractively priced right now?

Ng: Well, we think business conditions will stay healthy for Intel this year, and we're projecting mid-single-digit growth for 2011. Our fair value estimate is $23 per share. So, the stock seems fairly valued right now.

Glaser: Andy thanks so much. We'll definitely keep an eye on Intel as the year progresses.

Ng: You're welcome.

Glaser: For Morningstar.com, I'm Jeremy Glaser.