This article coming from Barron
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Lesson From a Science Fair:
Intel Is Back on the Rise
By ERIC J. SAVITZ
Our Gadget of the Week
I SPENT SOME TIME at Intel's campus in Santa Clara, Calif., last week for the annual geekfest known as Research@Intel day. Intel flew in scientists from its research centers in Germany, China, Russia and elsewhere to show off a wide range of research projects. Charmingly unpolished, the event felt like a middle-school science fair, except that all of the exhibitors were wearing black Research at Intel polo shirts. That, and the fact that ultimately this was not just a day about R in the long run, what matters is EPS.
In truth, I went to the Intel event looking for an excuse to write a bullish column on the microprocessor giant (ticker: INTC). I have been writing oodles of posts on my blog about the company of late, many reflecting how Intel may be affected by developments at arch-rival Advanced Micro Devices (AMD). In particular, the Street is obsessed with any scrap about AMD's much-anticipated new server processor, Barcelona. Whether or not Barcelona is the chip that saves AMD, that kind of short-term focus misses Intel's long-term strengths. And I came away from the Research Day convinced that Intel has the right instincts to complete its turnaround and blow past AMD.
This is not to say there was any single thing at Intel's science fair that struck me; it was more the sense that the company is smartly planning beyond the next processor cycle and looking for long-term ways to build the business. Intel displayed a wide variety of projects at the event, many more than I can describe here, but there were a few trends that struck me as worth watching.
The busiest room Wednesday involved a series of demonstrations on how Intel will be able to produce far more powerful processors than it sells today -- and what people might do with that kind of power. Intel demonstrated an 80-core processor that it claims is the first to offer more than one teraflop of performance. (A teraflop is a trillion floating-point operations per second; in other words, they showed an astounding amount of computing packed into a single chip.)
Other displays focused on what you might do with that kind of power. For instance, one demo showed a method for automating the process of editing video of sporting events down to the highlights. Another demo involved 3D Web conferencing -- think WebEx meets Worlds of Warcraft. And there was a demonstration of Ct, a version of the programming language C specifically designed to work with multi-core processors. (The t stands for "throughput.)
Also in evidence was a big push into mobile computing. I was particularly struck by a series of demos from the company's Seattle lab, where researchers think there is a big opportunity to insert environmental sensors into mobile devices. The idea: Mobile devices are more useful if they know something about the world around them.
'Netted: Sanford C. Bernstein & Co. launched Internet coverage, helping Google and eBay buck an outgoing tide. For the week, the Nasdaq slid 1.1%, to end Friday at 2589.
Take, for instance, a goofy gadget Intel calls the Ubifit Garden. Intel built a device roughly the size of a pager that contains a variety of digital sensors, including a thermometer, a barometer, a 3-axis accelerometer, a microphone, a digital compass and sensors for humidity and for visible and infrared light. Worn on your collar or belt, the device then tracks all of your physical activity during the day. Based on the sensor data, plus some special algorithms, it can apparently tell when you are standing around doing nothing and when you are walking, running, biking or doing other physical tasks. The data are then sent wirelessly to your cellphone, which displays -- I am not making this up -- a bunch of digital flowers. The more activity you engage in, the more your digital flowers grow.
THERE WAS LOTS OF OTHER COOL STUFF. A software program called MashMaker makes it easy to do Website mashups -- combining elements from multiple sites. There was technology to improve battery performance in portable devices. There was a project aimed at reducing power costs in data centers by having them switch from AC power to high-voltage DC power. I also liked the demo of a mesh network using Classmate PCs, low-cost laptops Intel is targeting for students in the developing world (but which Intel likely will eventually sell here, as well).
The big takeaway is that Intel is thinking big -- and thinking ahead. The market doesn't think that far ahead, though. While the stock is up about 27% since April, the shares continue to be buffeted by rumors about the status of Barcelona.
This is all short-term noise. Intel continues to dominate the global market for microprocessors. Its market share varies, but tends to hover around 80%. AMD has most of the rest. For years, Intel more or less tolerated AMD as a necessary evil, a buffer against the antitrust police. But in 2003, 2004 and 2005, a funny thing happened on the way to the monopoly: Intel stumbled badly, and AMD briefly had the technological edge. From early January 2004 through mid-2006, the stock lost half of its value. The company responded with a series of belt-tightening moves, cutting heads and chopping costs. And it is now on the mend.
David Readerman, an analyst at Marsico Capital in Denver, notes that Intel, a company with a $140 billion market cap, has become a turnaround story. Readerman points out that revenue in the June quarter should come in at about $8.8 billion, up from $8 billion a year ago; the previous quarter, revenue was actually off a tad year over year. He also says the June quarter should be the trough for gross margins. Intel continues to take steps to fix its cost structure, unloading its mobile-phone processor business to Marvell (MRVL) and spinning off its money-losing NOR flash-memory business into a joint venture. There is also speculation on the Street that Intel will tighten capital spending to help soak up excess capacity and boost margins.
Let's not forget that Intel remains a powerhouse in semiconductor manufacturing; it has begun transitioning from 65 nm line widths on its chips to 45 nm; AMD is not there yet. And in fact, there is growing belief that AMD is planning to start outsourcing at least a portion of its production. Goldman Sachs analyst Jim Covello recently upgraded his rating on Intel on the theory that Intel will benefit from AMD's outsourcing moves. His view is that pricing pressure in downturns will be more muted if there is less dedicated processor manufacturing -- and that Intel will widen its edge in production if AMD is not in direct control of its fabs.
Intel has manufacturing strength, a new focus on cost controls, a wounded rival and a vision of the future. In short, as you look out over the next few years, your portfolio really should have Intel inside.
