Intel Corporation (INTC): Value-Trap or Income-Play?

Intel Corporation (INTC)Intel Corporation (NASDAQ:INTC)‘s 4% dividend yield is a siren song to investors at a time when the average savings account yields only 0.5%. But will Intel end up hurting investors? Or is Intel stock the perfect investment for those looking for a safe income investment?

Value trap
In 2011, Intel Corporation (NASDAQ:INTC)’s market share rose a substantial 2.5%, but in 2012, it lost 0.1% of market share. Meanwhile, Samsung, QUALCOMM, Inc. (NASDAQ:QCOM), and Broadcom Corporation (NASDAQ:BRCM) — all with a larger presence in the mobile semiconductor market and which use ARM Holdings plc (NASDAQ:ARMH)‘s chip designs — gained market share in 2012.

Company 2012 Market Share 2011 Market Share
Intel 16.4% 16.5%
Samsung 9.5% 8.9%
Qualcomm 4.4% 3.3%
Broadcom 2.6% 2.3%

Source: Gartner. Several companies omitted.

The drastic 14% decline in PC shipments hurt Intel’s share, whereas the growing mobile market benefited the others. Samsung provides smartphone application specific integrated circuits, QUALCOMM, Inc. (NASDAQ:QCOM) leads the mobile application processor market with 25% market share, and Broadcom Corporation (NASDAQ:BRCM) leads the Wi-Fi market with 62% market share. Combined, ARM-designed chips have 90% of the smartphone market.

All this underlines the significant disruption occurring in the tech industry that makes Intel Corporation (NASDAQ:INTC)’s stock a risky holding. Tablets and phones are the only growth areas, and Intel has, at least for now, little to contribute.

Last year, Intel created and pushed the “ultrabook” concept to help boost sales versus its competition. Though there were expectations of 22 million sales in 2012, only about 10 million ultrabooks were shipped. Even thought Intel Corporation (NASDAQ:INTC) spent $300 million in advertising ultrabooks, the products have yet to catch on as expected. This demonstrates that even with a dominant market position, a history of innovation, and nearly unlimited resources, pivoting to a new industry dynamic is tough work. And while working it out, Intel may continue to suffer, as its gross margins and free cash flow trend downward:

Intel Corporation (INTC): Value-Trap or Income-Play?

INTC Free Cash Flow TTM data by YCharts.