Over the past several years, Intel Corp. (INTC, Financial) has faced profitability problems as a result of the persistent decline of the PC market, which generates the majority of its chip sales. Furthermore, the chip manufacturing giant has lost some of its market share to Advanced Micro Devices Inc. (AMD, Financial).
Source: CPU Benchmark
Intel, however, has devised a smart new strategy to gain back its lost market share and maintain its leading position in the central processing unit (CPU) market. The company launched its eighth-generation core processors last month, which are designed primarily for the notebook PC market. The chip manufacturing giant claims its new core CPUs can boost laptop performance by nearly 40%.
The company also revealed its new core processors will be composed of three separate chip architectures along with two process technologies and supports 4K video, virtual reality and several other cutting-edge innovations on a platform-wide level. Advanced Micro Devices' next-generation Ryzen chips will not be released until early 2018.
As a result, Intel has a time advantage over Advanced Micro Devices. Moreover, Intel’s chips will be used in more than 100 laptop and notebook designs from several manufacturers. It appears the company launched its new chip at the right time as original equipment manufacturers (OEMs) will likely upgrade their products with the latest hardware heading into the holiday season, when sales are conventionally robust.
According to Gartner, worldwide shipments of PCs are projected to remain flat for at least the next two years. Intel, however, is well aware of the declining PC market and is aggressively focusing on other growth areas as well.
Intel completed its $15.3 billion acquisition of Mobileye NV last month. Furthermore, on Sept. 18, the company announced a partnership with Alphabet Inc.'s (GOOG, Financial)(GOOGL, Financial) self-driving unit, Waymo, to deliver the computing power necessary for fully-featured, self-driving cars that can operate in most weather conditions.
Waymo’s self-driving Chrysler Pacifica minivans already feature Intel’s technology for everything from connectivity to sensor-data processing. By working together more closely, both companies aim to produce vehicles capable of driving without human intervention.
Currently, apart from Nvidia Corp. (NVDA, Financial), Intel appears to be the only company that can mass produce the innovative and efficient chips Waymo requires to bring its tech to market at scale.
Intel currently offers a robust dividend yield of 2.93%. Despite the healthy dividend yield, however, its payout ratio sits at just 40%, suggesting the company still has room to grow its dividend in the future. The chip manufacturing giant generates impressive free cash flow (FCF) and has been able to cover dividend payments very well.
The growth of the annual dividend, which is currently $1.09 per share, is illustrated in the chart above.
Summing up
Intel operates in an industry where continuous innovation is required to move forward, and the company is working to compete effectively against its rivals. Although Intel has missed out on the rally enjoyed by its competitors, its future still looks bright.
The chip manufacturer made a smart decision by launching its new chips ahead of the holiday season. This will help it quickly capture market share and could hurt its competitors' growth in the imminent quarters.
Apart from this, Intel is witnessing strong growth in several other areas, including the internet of things (IoT) and non-volatile memory solutions.
The stock currently trades with a price-earnings (P/E) ratio of 14.25, suggesting it is undervalued. As a result, shareholders should continue their long-term journey with Intel as it is well positioned to benefit from emerging technologies going forward.
Disclosure: No positions in the stocks mentioned in this article.
