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Intel has the chips
News that Apple might start buying Intel chips shines a spotlight on the leading chipmaker.
May 24, 2005: 5:59 AM EDT
By Michael Sivy, CNN/Money contributing columnist
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NEW YORK (CNN/Money) - Reports that Apple Computer is in talks to start using Intel chips in Macintosh computers sent tech stocks surging on Monday.

Apple stock was up $2.21, or more than 5 percent. The reason: Apple's computers are widely considered first-rate but expensive. A deal to use Intel's low-cost chips might help reduce the price of Apple's machines, allowing Macs to pick up market share.

The news should also be bullish for Intel. Whether the deal comes to fruition or not, Apple's interest confirms that Intel is not only the world's largest chipmaker, but also the industry's benchmark producer.

In fact, investor interest in Intel has been growing since the beginning of the year. Eight brokerages have raised their ratings or issued an initial buy on Intel over the past six months. And many value investors consider the stock moderately underpriced.

Among the positives they point to: first-quarter earnings were up an impressive 25 percent from a year earlier, helped by laptop sales that were running above expectations. Since then, several computer makers have confirmed positive trends in personal computer sales.

Intel (Research) also expects to launch a chip that uses paired microprocessors early next year. Analysts say the new chip will put Intel ahead of its rivals technologically.

In addition, the company is developing so-called platforms for desktop machines that will include more than just a microprocessor. The platform currently in development would include system-management features as well as enhanced security. Machines using the platform would also save power.

This technology is favored by Intel's new CEO Paul Otellini, who took over from Craig Barrett last week (Barrett has moved up to the chairmanship). Otellini's strategy is to move Intel away from being simply a chip supplier and tailor products more for specific markets. Such a strategy could help the tech giant maintain a double-digit growth rate.

Earnings are expected to increase at least 10 percent next year. Longer term projections are for earnings to rise at a compound annual rate of as much as 15 percent over the next five years.

At a current price of 26.50 a share, the stock trades at less than 18 times next year's projected results, a reasonable price for a tech leader at the beginning of an upswing.

Sivy on Stocks resources:

Sivy 70: America's best stocks

Guide to Growth

___________________

Michael Sivy is an editor-at-large for MONEY magazine. Click here to receive Sivy on Stocks via e-mail every Tuesday.  Top of page

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