Intel Corporation (NASDAQ:INTC) has long been tied at the hip to Microsoft Corporation (NASDAQ:MSFT). While that worked well for a long time, the chip giant is branching out and making a smart move by getting cozy with Google Inc (NASDAQ:GOOG) and its Android operating system.
Building a Business
Intel Corporation (NASDAQ:INTC) and Microsoft are the foundation on which most of the world’s computers are built. The pair found each other early on in the personal computer revolution and together rode the industry’s wave to dominant, worldwide positions. Microsoft, for example, had revenues of nearly $70 billion in fiscal 2012 while Intel Corporation (NASDAQ:INTC)’s top line chimed in at just over $53 billion.
Those are big numbers from companies with still dominant positions in the technology industry. Clearly personal computers were good to the pair. However, the stock market looks forward, not backward, and all of that is in the past. Today, both Microsoft and Intel Corporation (NASDAQ:INTC) shares trade at roughly the same level they did five years ago.
A New Future
The future today is in mobile devices. This revolution started with the lowly cell phone, but quickly sped up with the Internet capable smart phone. Apple Inc. (NASDAQ:AAPL)’s iPhone was the device that kick started the movement. The company’s iPad furthered the push away from a computer tied to a wall by a power cord.
Interestingly, the iPad and similar devices are essentially casual computers. They can do enough that most people don’t need to have a computer. The piece that cements this is mobile Internet connectivity, and this has led to a decline in personal computer sales.
The Big Fish
Apple, however, isn’t the big fish in the mobile space. The big name is Google, whose Android operating system powers the vast majority of mobile devices sold today. While there have been off and on rumors of Apple and Intel Corporation (NASDAQ:INTC) teaming up, which would indeed be good for Intel Corporation (NASDAQ:INTC), such a union doesn’t have the potential of an Intel/Google alliance.
Luckily for Intel, Google’s business model is an open one. The company gladly partners with other companies in an effort to reach the broadest possible audience. Google, for the most part, makes its money via advertising and, with Android, royalties on application sales.
Missing Out
Mobile has been the Achilles heel of both Microsoft and Intel, as neither has been able to fully penetrate that market. Microsoft has pushed aggressively to break into the top echelon of mobile operating systems, recently pairing with Nokia to power that company’s Lumia smart phone. The outcome of this effort is still up in the air, but Nokia’s dominance in emerging markets holds great promise.
Intel, however, is still suffering under the image of being a late mover. That’s a well-deserved heckle, but one that the company is looking to shed. And it has the money to support that effort, with some $18 billion in cash and investments. While the company’s debt load is material, at around $13 billion, that still leaves the company with a net cash position of $5 billion.
Late, but not Absent
While Intel and Google have been working to make Android capable chips for several years, it is only now that the partnership is starting to heat up. At the Mobile World Conference, the company announced a full slate of mobile targeted chips and chip deals with Etisalat and ASUS.
These are good steps in the right direction for Intel. And, like Microsoft, the company can create a large business without ever touching the developed markets. The high-end market is important, but there are a lot more people in the world that can only afford less expensive devices. Even Apple is looking to offer a stripped down version of its iPhone in an effort to tap this group of customers.
Unlike Microsoft, Intel will probably find it easier to gain traction in developed markets once its mobile chips prove their worth. That’s particularly true based on the Android connection, since that operating system has a market share that is multiples of Apple’s OS for cell phones. And Android is also on a clear path to trump Apple in the tablet market.
A Good Buy
With such a broad market, Intel will have plenty of potential hardware partners to hit up for contracts. Intel may be late to the mobile game, but it looks set to catch up quickly. With a dividend yield around 4%, a still dominant position in personal computers, and an aggressive push in the mobile space, Intel looks like a good option for just about any investor.
The article This Chip Maker Is Branching Out originally appeared on Fool.com and is written by Reuben Gregg Brewer.
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