Intel Doesn't Fear Competition from Tablets (INTC, AAPL, MFE, IFNNY, ARMH)

In its third quarter earnings report, Intel Corp. (NASDAQ: INTC) posted better than expected EPS and revenues, but the company had already lowered the bar in August. The chip giant also forecasted fourth quarter revenues that were in line with analysts’ expectations.

The company sees PC sales growth of 18% for the current quarter, and expects another year of double-digit growth in 2011. Most of the impact will come from enterprise sales of servers and PCs, while Intel sees a softer market for consumer products in Europe and the US.

Intel’s CEO also noted that the company “fully welcomes” competition from tablet devices such as the iPad from Apple Inc. (NASDAQ: AAPL) because the interest in the devices has expanded the market for computing in general. He did say that he expected some impact on PC sales as a result of the popularity of tablets, but that he expects Intel to participate in the new segment.

Well, the company has bet more than $9 billion on that sentiment, so he’d better hope so. First there is the $7.7 billion acquisition of McAfee, Inc. (NYSE: MFE), and second there is the $1.4 billion buyout of Infineon Technologies AG (OTC:IFNNY). Neither deal closes until early 2011.

The acquisition of Infineon gives Intel an instant entry into the booming market for wireless devices. Infineon’s license to make customized versions of the ARM chip from ARM Holdings plc (NASDAQ: ARMH) was the big prize here. Apple uses an ARM chip in its iPhone, iPad, and iTouch devices, and Intel may be able to parlay its Infineon acquisition into a whole new relationship with Apple.

The buyout of McAfee offers Intel an opportunity to put security at the center of its push into mobile computing. Intel has recognized that mobile devices lack serious a security component, and it believes it can lead the market for mobile processors if it can be first out of the blocks with a strong hardware security component.

Intel is also prepping for the launch of a new family of chips that offers on-chip graphics support in addition to the usual computing functions. For enterprise computing and for a lot of general consumer computing, this should lower the cost of a system while still allowing Intel to maintain its gross margins, projected by the company to be 67% in the fourth quarter.

Intel should have little trouble hitting its adjusted targets for the fourth quarter. And based on its statements about orders for the new chip, the company’s outlook for the first half of 2011 should also be okay, even if not strong. But if it can really execute on its two big acquisitions, the juggernaut might really roll again.

Paul Ausick