Why Intel Corporation (INTC) Needs to Buy MediaTek

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Intel Corporation (NASDAQ:INTC)’s most recent quarterly results were largely impressive, as the chipmaker beat expectations with revenue of $13.8 billion and net income of $2.8 billion. However, one glaring weakness was the company’s mobile division, whose revenue fell to just $51 million, a steep 83% drop from the year-ago quarter. As Investors.com reports, RBC Capital Markets’ analyst Doug Freedman has a solution for Intel Corporation (NASDAQ:INTC)’s lagging mobile division: purchase Taiwan’s MediaTek.

Intel Microprocessors

The analyst made his comments/recommendations yesterday in a research report, which showed that Intel Corporation (NASDAQ:INTC) would create more than twice as much shareholder value ($27 billion) through a buy strategy to achieve 30% market share in mobile chips within the next seven years, as opposed to an organic growth strategy ($13 billion).

Intel Corporation (NASDAQ:INTC) currently has just a 4% share in mobile chips, compared to a 66.8% share in PC graphics chips. Mediatek, on the other hand, boasts a sizable advantage in the mobile market, and would instantly enhance Intel’s share of mobile by 16%. In terms of baseband chips and processors, MediaTek has doubled their market share in the former over the past six years, while being estimated to have a 28% share in the latter this year.

In a telephone interview with TheStreet, Freedman said he sees the deal going down within the next two to three years, almost out of necessity for Intel, and that it will cost the chip-maker about $27 billion, which may be a bargain considering they are currently spending $1 billion quarterly to get established in the market, and suffering heavy losses during that time, with revenue from mobile not expected to rise for another two to three years despite the investment.

Ken Fisher’s Fisher Asset Management is one of Intel Corporation (NASDAQ:INTC)’s largest shareholders with nearly 19 million shares in the chipmaker worth just under $600 million.

Disclosure: none

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