In the 1990s, Intel (INTC: Charts, News, Offers) and Microsoft (MSFT: Charts, News, Offers) were widely regarded as the dominant growth forces in tech. Together, they started the “Wintel” dynasty – a time where Pentium clock speeds were an industry standard and Windows was synonymous with the personal computer. Both companies were big bullies – Intel marginalized long-time rival AMD (AMD: Charts, News, Offers) using controversial strong arm tactics and Microsoft was probed by the Justice Department for its anti-competitive practices against Netscape. Microsoft’s former rival Apple (AAPL: Charts, News, Offers) was broken, shriveling in the corner without its iconic founder, Steve Jobs. What a difference a decade makes.

Today, Intel and Microsoft are among the worst performing tech stocks in the Nasdaq. Microsoft rests at less than half of its all-time high, and Intel is at approximately a quarter. That doesn’t mean these companies have shrunk. On the contrary, they have continued growing earnings, more than doubling their earnings per share. However, investors are indifferent to “Wintel” stocks since the prevailing view in 2011 is that the Wintel dynasty has ended. With the industry shaking return of Apple with its iPhone and iPad devices, the tech industry has shifted away from focusing on desktop and laptop based processors in favor of low-power consumption mobile processors – a field dominated by ARM Holdings (ARM: Charts, News, Offers). Other names dominate key supply chain parts of the tablet/smartphone revolution – Qualcomm (QCOM: Charts, News, Offers), Broadcom (BRCM: Charts, News, Offers) and Texas Instruments (TXN: Charts, News, Offers) being its most important industry peers, each producing specialized fabless microprocessors for specialized hardware. Even graphics chip giant Nvidia (NVDA: Charts, News, Offers) has thrown its hat into the mobile processor ring with its Tegra all-in-one chips. With the decline of personal computers – as evidenced by Hewlett-Packard (HPQ: Charts, News, Offers) and Dell’s (DELL: Charts, News, Offers) poor quarterly earnings and guidance – Intel is steadily losing ground to specialized processor manufacturers in niche markets. In the end, even long-time partner Microsoft announced that Windows 8 would be optimized for ARM processors.

However, Intel hasn’t completely given up on making a mark in the mobile revolution. This week, the company announced that it was now working with Google (GOOG: Charts, News, Offers) to port Android to the aging x86 architecture used by Intel and AMD. While this won’t be a silver bullet against the onslaught of tablets and smartphones powered by its smaller rivals, it buys Intel valuable time to manufacture a proper competitor to its more energy efficient competitors. The hardware giant is most likely to design a new batch of processors for mobile devices as none of their current Atom CPUs are power-efficient enough for phones or tablets. They also need to work on a solid GPU, since Intel integrated graphics have become an industry punchline for mediocre performance. ARM and Nvidia have been churning out powerful hardware for the mobile platforms for a while now, so Intel has some catching up to do. Despite Intel’s cross-licensing agreement with Nvidia, the latter still remains an efficient competitor which threatens to chip away at Intel’s market share.

Analysts have long touted Intel’s attractive valuations. With a trailing P/E of 9.3. a dividend yield of 4.3%, and a RoE of 25.9%, it’s hard to argue. However, shares of Intel have gone nowhere over the past decade. Intel’s operating (30.13%) and net profit margins (22.67%) both shrunk over the past year, and its core business is based on maintaining gross margins over 60%. While the company was able to keep its head above water with gross margins of 60.64% in the most recent quarter, its younger industry rivals are perfectly content with gross margins of 40% on higher sales volume. In addition, the geek revolution in the 1990s, when computer users would compare clock speeds religiously, is long over. Normal computer users no longer care about nor understand processor speed – rather superior branding, packaging and software interface (such as Apple) – has become far more important. Ironically, Intel confused consumers even more with its i3, i5 and i7 lines – which was originally intended to “simplify” its product line – perhaps to mimic BMW’s 3,5 and 7 series. The idea backfired and confused consumers even more than its Ghz measurement standard. Throw in the idea of multiple cores (physical and logical), and ordinary consumers would just rather buy “something that works out of the box” than fret over technical details.

Although some investors think that Intel will survive only relying on its core competencies in PC and laptop markets, this would flatten the company’s growth potential. The company’s virgin effort in mobile territory – the Atom – was dubbed a failure. However, the company introduced new smartphone and tablet processors this week in San Francisco at the Intel Developer Forum, demonstrating its latest advances in chip miniaturization and Ultrabook processors. The thin Ultrabook devices, fragmented across multiple hardware retailers, will retail for approximately $1,000 and aimed at refreshing the laptop market with an improved power consumption / performance ratio. However, industry observers are quick to notice a glaring fact – that Intel’s “Ultrabooks” seem to be lackluster imitations of Apple’s three-year-old Macbook Air. Intel’s new processors are also focused on lower power consumption in an all-in-one chipset, showing that the company is evolving to compensate for its weaknesses, exploited continuously by rivals ARM Holdings and Nvidia.

Source:http://www.investorguide.com/article/9563/intel-intc-aint-what-it-used-to-be/