"What on earth is an exabyte?"
That was my first thought as I listened to Intel's CEO, Paul
Otenelli, talk about the company's quarterly results last week. He'd
just informed the crowd that a total 245 exabytes of data had crossed
the Internet during 2010.
An exabyte is a billion gigabytes. Add up 245 of those... that's
beyond most people's imagination. Let's say the average movie download
is about one gigabyte, 245 exabytes equals around 245 billion movie
It's mindboggling. And that number is going to keep growing. The
best part is, it will never stop. Calling it a multidecade trend doesn't
do it justice. And there are going to be massive winners along the
More devices connect to the Internet every day. Tech research firm
Gartner expects PC sales to break the 400 million mark in 2011. Gartner
also expects 55 million new tablet computers over the next year.
In 2011, global smartphone sales will hit an estimated 500 million,
up more than 80% from 2010. In addition, you can expect tens of
millions of new e-readers, smart TVs, and devices embedded in cars. With
all those gadgets and it's easy to see how the world will add more than
a billion connected devices over the next year.
Intel's CEO concluded, "Over the next five years, a billion more
people will join the global online community, with 15 billion new
connected devices including PCs, smartphones, tablets, embedded devices,
and smart TVs."
Billions of devices means even more billions of little parts that
go into each device. One big winner is the semiconductor industry.
I've written about this enormous trend in recent months
. A lot of the stocks I've mentioned
are up big in just a few weeks. For example, Nvidia shot up 20% in a
week earlier this month. Cypress Semiconductor and STMicroelectronics
are up about 20% in a little over a month. While I like these names as
long-term plays, I don't expect them to go up in a straight line. As
with any group of stocks, expectations can rise too fast.
For a safe way to play the big trend, you can go with the 800-pound
gorilla of the industry – Intel. Intel's Atom processors are going into
dozens of tablets and smartphones this year. And the company said it
will boost research and development spending to $9 billion in 2011 (from
$5.3 billion last year) in order to gain market share in tablet
computers and smartphones.
Intel also gets more than 20% of its revenue from its server
division. That's over $8 billion during 2010 – more than all but a few
other semiconductor companies. This segment includes data centers. These
are the massive computer systems that store and deliver the information
that users are accessing and sending on a daily basis between billions
of devices. When a billion people want to download the latest hit movie,
there's a good chance Intel's processors are involved at some point.
But while investors are starting to flock to many of the smaller,
riskier names in the semiconductor sector, they're ignoring Intel.
In fact, expectations are downright negative because of Intel's
dominant position in processors for PCs, where the company controls
about 80% of the market. PC sales are expected to grow just 16% this
year – that's slow compared to the red-hot smartphone and tablet
The stock has traded slightly lower over the past six months as many smaller, more exciting names soared 50% or more.
Wall Street analysts expect Intel to earn $2.11 per share in 2011.
That's a modest 3% growth rate. Intel's actual 2011 results could easily
surpass this estimate thanks to the company's server segment and its
Meanwhile, Intel's stock is cheap. Based on the conservative $2.11
estimate, shares are trading at less than 10 times earnings. Over the
last five years, Intel's stock has traded at an average of more than 21
times earnings. Even factoring in the slower growth in the PC market,
shares of Intel are a steal if you can get them around $20.
With billions of devices coming online, it's an exciting time to be
a tech investor. The only question is whether you want to pay up for
riskier, high-growth names. Right now, Intel looks like the better