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Intel Corporation (INTC) & Advanced Micro Devices, Inc. (AMD): These Stocks Will Bring You Happiness (And Capital Appreciation)

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Semiconductor corporations have to be dynamic for them to adapt to ever-changing customer needs. Intel Corporation (NASDAQ:INTC) is regarded as the leading chip manufacturer because of the hegemony imposed in the computer markets. Advanced Micro Devices, Inc. (NYSE:AMD) is another chip manufacturer that provides cheaper solutions to customers on the low end of the price spectrum.

Intel Corporation (NASDAQ:INTC)

Even though these companies have monopolized the computer business for the last decade, the invention of the tablet caused a severe decline in PC sales and brought serious headaches to several companies. How are these companies vindicating the decline in PC sales?

Chips for different products

Intel Corporation (NASDAQ:INTC) continues to nearly monopolize computer processing with its Core-I chips. Although they are more expensive than Advanced Micro Devices, Inc. (NYSE:AMD) A processors, they offer faster performance. The company has been trying to expand to other markets to offset the loss of revenue from the PC section.

According to StarCounter, a software that checks operating systems used to access certain websites, only 4% of users utilize Windows 8, developed by Microsoft Corporation (NASDAQ:MSFT). For the same period in 2010, StarCounter reported that 11% of the users had Windows 7. Overall, there is strong evidence that Windows 8 has not been received by customers with the positive interest that was originally expected.

I believe part of the problem of declining PC sales was the significant number of changes from Windows 7 to Windows 8. Consumers are finding difficult to adapt to the new OS, and the first question asked is: “Where is the Start button?” Windows 7 was acclaimed because the interface remained, essentially, the same since Windows 95, only more stable and efficient. Microsoft Corporation (NASDAQ:MSFT) needs to reinvent itself and come up with products that are a success. Until this happens, revenue aren’t likely to increase until the Xbox One is released.

The Xbox One is expected to be the ultimate gaming and multimedia machine, which will incorporate voice recognition through Kinect, incorporation of digital cable television, and internet-based app capabilities such as Skype. The company has reinvented what customers perceive as a simple video gaming console. I expect the Xbox One will have better reception than the Xbox 360, and Microsoft’s revenue should rocket upward.

Microsoft Corporation (NASDAQ:MSFT) trades with a P/E of 17.2, slightly below the industry’s average of 18.6. Revenue rose 10% to $20 billion, and net income rose by 20% to $6 billion. This stock would be suitable in an income-oriented portfolio.

Going back to Intel, the company needs to expand its markets to mobile devices. So far, it has done fairly well adapting to the tablet industry. Although it is late to the party, with Apple and Samsung settled in the market, Intel Corporation (NASDAQ:INTC) is trying to take some market share through Windows 8 tablets. The new Intel Core processors consume as little as seven watts, which bodes well as thinner and lighter tablets are developed. The company’s sales will be driven forward as Intel Corporation (NASDAQ:INTC) adapts to new markets such as tablets and smartphones.

From a valuation standing, the stock trades with a P/E of 12.0, well below the industry’s average of 21.4. Its revenue declined in the last quarter by 4% to $12.5 billion, and its net income shrunk by 25% to $2 billion. However, cash from continuing operations rose by 35% to $4.2 billion, and its free cash flow rose by $2.1 billion to $2 billion. A strong free cash flow opens the possibility for a dividend jump. The last time the dividend was hiked was in May 2012. Investors should wait for another hike any time soon.

This one is tackling different markets

AMD is taking a slightly different approach to boost revenue. The chip manufacturer will supply Advanced Micro Devices, Inc. (NYSE:AMD) A8 processors to Xbox Ones and Playstation 4s. Although I am confident the Xbox One will be a blockbuster, AMD does not really care.

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