Intel (INTC): 'x86 everywhere'

"I'm not going to suggest that Wall Street was totally asleep at the switch, we've seen prices and estimates move up, in some cases significantly, during the last several months.

"However, the fact that INTC reported revenue 7% higher than the highest estimate from the 36 analysts covering the company is a clear sign The Street was still missing an important part of the equation.

"One of the interesting things about the INTC story is it can be as complex or as simple as you want to make it. I personally, enjoy the complex version, but I think the simple one has more merit for investors.

"This is abundantly simple -- x86 everywhere. That ís it. The goal at INTC is to leverage the abundant developer and software base the x86 has created over its nearly 30 year history with world-class fabrication technology and the plethora of intellectual property developed by it, its partners, and the numerous customers in its target markets.

"Through this, INTC will expand the applications base for the x86, which is the de facto platform for the computing world, to every nook and cranny of consumer, automotive, medical, aerospace and industrial electronics you can imagine.

"I don't think the question here is whether INTC will succeed in this strategy; I think we can safely assume with high double-digit certainty that it will.

"The better question is to what degree will INTC succeed and, as new products and new design approaches are developed, who will ride the wave of change and who will drown in the wake.

"The perspective that we use to view the tech industry is that the rate of change during the next two years will be significantly higher than usual; there is a wave coming and there is nothing anyone can do to stop it.

"What weíre going to see is 'processing' or, as it ís often referred to, 'intelligence,' integrated into a wide variety of products and, in many cases, the invention of completely new product categories.

"And, along with this intelligence, weíre also going to get interconnectivity -- the products are going to be able to communicate, some with and others without our awareness or even our direct involvement.

"Atop all the ingredients in the INTC arsenal is what I see as the emergence of a great leader; if it weren't for the fact that Paul Otellini is leading the INTC charge, I would have grave doubts as to whether it would have even seen its destiny, let alone be able to successfully leverage its inherent strengths.

"The short story here is, as I like to say, 'Management Matters.' Not only does Otellini see INTC's destiny, he has crafted the operational, structural and philosophical changes necessary to support it during the last three years.

"For Otellini, 'x86 everywhere' is not an epiphany, it is a carefully planned strategy that has been years in the making.

"INTC is the number one semiconductor producer in the world and will likely account for roughly 15% of the entire semiconductor market in 2009.

"Much more important than volume though is the fact that INTC is the clear world leader in the implementation of advanced fabrication technology and the economical design and production of extremely large and highly complex chips.

"The implication here is that INTC can integrate more densely and at a notably lower economic cost than any of its competitors.

"While it wasnít always the case, INTC has restructured its design environment to where it now not only has the largest R&D budget in the world of semiconductors, it also has some of the most transportable intellectual property.

"This is one of the very key strategic structural changes implemented at INTC by Otellini. As a result of this change, INTC can now design something once and leverage it forward many times.

"The consensus for 2010 earnings is currently sitting at $0.88, up 10% from $0.80 three months ago. I think the estimate will prove to be 25% to 50% too low.

"Using my forecasted earnings range of $1.10 to $1.32, the value target would be between $19.16 and $22.68. I also expect that I will be raising the lower end of my earnings estimate range, resulting in a higher midpoint."

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