The words “tech” and “high-yield” don’t usually go together, but if you look hard enough there are exceptions. The problem is that those tech companies that do offer high dividends — let’s say 3% or higher — generally have limited growth potential. When they do have that potential, it offers a rare combination that can make for great long-term capital appreciation. One example is Intel Corporation (NASDAQ:INTC), which offers a yield of above 4% and is trading at a discount due to general pessimism surrounding its industry.
The PC business today and why it’s not that bad
With the dramatic growth in smartphone and tablet sales over the past couple of years, the fate of the traditional PC has been called into question. In fact, more smartphones than PCs are expected to be sold worldwide this year. Although global smartphone and tablet sales are widely expected to continue to grow at a rapid pace, these devices are not expected to take the place of PCs (including desktops and laptops) anytime soon.
There will be a market for PCs for years to come, and while it will lose market share to tablets in terms of percentage of sales, sales of PCs are projected to grow in terms of the number of units shipped. In fact, including both desktop and laptop PC’s, total units shipped are expected to climb from 322 million in 2013 to 333 million in 2017. PCs are still the most practical solution for such end markets as education, enterprises, and government users. PCs are still the most cost-effective way to get the most computing power, as well as the most storage capacity. In fact, one recent study estimates that global PC sales will rise from approximately 400 million currently to about 500 million by 2016.
While microprocessors only make up about one-fifth of the semiconductor sector’s sales, there are only two companies that really compete within the space, Intel Corporation (NASDAQ:INTC) and Advanced Micro Devices, Inc. (NYSE:AMD). After a couple decades of battling for market share, Intel seems to be the clear winner, now shipping about 75% of the microprocessors sold worldwide.
Advanced Micro Devices, Inc. (NYSE:AMD)’s PC microprocessor market share peaked at about 50% in 2006 due to its lower prices and products that were on-par with their Intel counterparts. However, since that time, Intel Corporation (NASDAQ:INTC) has made tremendous efforts to improve its efficiency in terms of its manufacturing and cost structure, and more importantly, has improved its product development to ensure that it offers the best processors in the market for the price.
Lately, Advanced Micro Devices, Inc. (NYSE:AMD) has struggled to keep its microprocessor market share, and has undergone a few rounds of downsizing, having laid off about 10% of its workforce in 2011 and an additional 15% last year. Even with a low market share, AMD remains a threat to Intel Corporation (NASDAQ:INTC), especially in the lower-end PC and server markets
Future possibilities: It’s all about mobile
Intel Corporation (NASDAQ:INTC)’s dominance in the PC business should sustain its revenues for years to come. On the other hand, in order to experience significant growth, the company will have to have some success in mobile processing.
Intel Corporation (NASDAQ:INTC)’s latest major venture into the space is already under way, with the company getting set to begin shipping its first multimode LTE chips, which aim to support 15 LTE bands and consume more than 20% less power than the competitors’ similar chips. Once Intel works out the kinks with this type of product, it will be the key to getting Intel processors in handheld devices operating on U.S. networks (this has been the major reason why the company’s processors aren’t already in handheld devices).
One potential game-changing possibility is if Apple Inc. (NASDAQ:AAPL) decides to use Intel Corporation (NASDAQ:INTC) for its processing needs in the iPhone, iPad, or both. The two companies already have an excellent working relationship, and an Intel-powered iPad Mini, for example, could be viewed as even more of a premium product than it already is.
Intel Corporation (NASDAQ:INTC) is unanimously recognized as the microprocessor leader throughout the world, and would add to the perceived value of Apple Inc. (NASDAQ:AAPL)’s products. Of the 30 highest-performing microprocessors on the market today, 28 are made by Intel. As far as the pricing power that comes with their reputation is concerned, just take a look at average price of a PC with and without an Intel processor. If it turns out that Intel can deliver competitive mobile processors, this is actually a very likely scenario, as it would be a win-win for both companies.