Gordon Moore could see the future. He knew better than almost anyone how a tiny electrical component called a transistor would transform society.

Three scientists won the Nobel Prize for inventing the device. But Moore explained how it would be harnessed. In 1965 he published a groundbreaking article in the obscure trade journal Electronics.

Back then there were no digital wristwatches or pocket calculators. Man had not yet walked on the moon. Computers were as big as cars and ran on bulky vacuum tubes. Homes still had rotary phones.

The high-tech sage turned the world with what ultimately became Moore’s Law — the number of transistors on an integrated circuit doubles about every two years.

With that in mind, Moore envisioned a world in which computers played an integral role in homes, offices and automobiles. A year before Captain Kirk used a handheld satellite phone on the Star Trek television show, Moore predicted mobile communications would become commonplace.

And today, this prediction could easily lead you to double your money on a rock-solid blue chip over the next 18 months. Let me show you how…

A New Generation of Chips With 1 Billion Transistors

Because of Moore’s law and efforts to prove it true, the computer drives the American economy today more than the automobile did in the 1950s. That’s why it’s difficult to envision a vibrant U.S. economy without a healthy Intel Corp. (INTC:NASDAQ).

But Intel isn’t taking any chances the overall economic recovery will boost its sales. Instead, it will spend nearly $10.5 billion this year on its growth.

The company will devote nearly $7 billion of that money to a new generation of tightly packed microprocessors. Intel is putting nearly 1 billion transistors on a chip the size of a fingernail.

Based in Santa Clara, Calif., Intel says no matter how complex its chips become, the company’s business philosophy remains simple:

Make good on Moore’s law. After all, Moore co-founded the company in the midst of the 1968 recession.

In the race toward miniaturization, size matters. It takes deep pockets and giant factories, called “fabs.” They’re costing Intel between $1 billion and $2 billion a pop.

We’re talking fabs the size of several football fields, with thousands of feet of pipes and enough concrete to fill a pond. The factory floor teems with machines the size of pickup trucks.

Silicon wafers go in, get etched, cut and cleaned. Out come semiconductors more powerful than the computers NASA used to land on the moon.

Microprocessors are tiny brains that drive computers. Transistors are like neurons, the pathways of intelligence. The more neurons, the better the brain.

Intel is investing in a new generation of chips with multiple “brains” operating at lightning speed. On these chips, a transistor’s components will measure 32 nanometers across, or 32 billionths of a meter.

By contrast, a typical germ measures 1,000 nanometers. Basketball star Shaquille O’Neal stands 2,160,000,000 nanometers tall. Intel intends to begin selling microprocessors with 32-nanometer technology late this year.

A Lousy First Quarter Signals a Rebound in Intel and Computer Sales

Intel stock had recently been soaring, recovering 33% from a 52-week low of $12.05 back in February. After announcing a stronger-than-expected first quarter the stock resembled a ride on a roller coaster.

A closer look, however, reveals much less volatility. The stock actually moved within a relatively narrow range of $1 from a 30-day low of $15 to a high of $16.

Then on May 4, it seemed to be breaking in earnest. It jumped about 5% that day to close at $16.64. That meant a rebound of 11% from the 30-day low. At deadline, the stock was back in the $15 range.

With 2008 earnings per share of 92 cents, Intel recently traded at about 17 times earnings. It has a market cap of $90 billion. It pays an annual dividend of 56 cents, for a yield of 3.67%.

Analysts list Intel as a “buy.” They cite supply chain depletion as a key reason for an improvement in earnings and stock price this year.

The global economic downturn forced PC makers to drastically cut new chip orders. Despite weak Christmas sales for computers and other electronics, retailers and manufactures say they’re running low on supplies.

Meantime, Intel intends to heavily market several new chips. It spent $5.4 billion last year on marketing, general and administrative expenses, basically unchanged from 2007.

With its “Intel Inside” campaign, Intel continues to burnish the brand with consumers. The company looks for other innovative ways to market products that used to appeal only to geeks

Take the case of Ajay Bhatt, an Intel employee and co-inventor of the Universal Serial Bus used to connected peripherals to computers. An Intel video shows him walking into room and of adoring fans who clamor for his autograph.

It’s part of a hip, futuristic web-based campaign in which Intel refers to its employees as “Sponsors of Tomorrow.” Intel says its workers are “blurring the line between science fiction and science fact.”

CEO Says Intel and PC Sales Have Finally Bottomed Out (And We Believe Him)

So, I’m not worried about Intel’s first quarter, I’m actually happy earnings dipped to give us a great buying opportunity. If the stock just gets back to its 52-week high of $25.29, it still gives us a lot of upside potential.

To be sure, net income in this year’s first quarter dropped to $647 million, a decline of 55% from the same period last year. Revenue declined 26% to $7.1 billion.

But here are the bright spots: earnings per share fell 56% from the year-ago period to 11 cents. But they climbed 176% from the fourth quarter.

Last Christmas was a pretty lousy selling season for all sorts of electronics, particularly personal computers. That’s why CEO Otellini said sales “bottomed out” in this year’s first quarter.

I believe Otellini. Companies and families can only postpone new PC sales for so long. Because of inherent obsolescence, buying used computers at bankruptcy sales is a stopgap, cost-control measure at best.

Software developers keep writing very complex packages that require more power. Translation: They assume you will be running applications with the latest high-speed chips.

That’s why it is hard to get much more than three years out of a PC. The thing starts acting buggy, slows to a crawl and starts crashing on you. It then becomes more fun to watch honey dropping from a spoon than to wait for your computer to boot up.

Meantime, even in a weak economy, Intel margins remain strong. Gross profit margin in the first quarter came in at 45.6%. The company expects similar margins for the second quarter, though it hasn’t forecast revenues.

Otellini is cutting costs with meat cleavers. Back in January, the company announced it would fire between 5,000 and 6,000 workers as it shutters four plants.

Alliance With GE Targets $8 Billion High-Tech Medical Market

My wife and I love to take the kids to Santa Cruz Beach Boardwalk each year. It’s quite a thrill to blast off on Double Shot and go hurtling 125 feet in the air as we over look the bay, Pacific Ocean and craggy coastline. We scream our fool heads off.

We have other favorite rides like Logger’s Revenge, where we try to avoid getting soaked during splash down. Last year’s Christmas card had a photo of us laughing hysterically as we shot down the chute of water.

Besides enjoying deep fried Twinkies sold on the boardwalk, my wife and I have another guilty pleasure: We like to people watch. It never ceases to amaze us how big some teenagers are these days. We often wonder how they will fare as adults if they already are obese.

So, as any one whose people-watched at an airport, shopping mall or movie theater will tell you, Americans are getting bigger. We’re also getting older. Go to a rock concert these days and you’ll see lots of gray hair.

These observations may seem odd when applied to a leading maker of semiconductors. But Intel intends to cash in on a growing market for home healthcare and telemedicine.

In April, Intel announced an alliance with General Electric (GE:NYSE) to develop home-based healthcare. The company said the alliance will help seniors live independently. It also will allow those with chronic medical conditions to manage their care from home.

Intel and GE Healthcare intend to invest $250 million in the enterprise over the next five years. GE will use its extensive sales channel to push the high-tech Intel Health Guide. They’re chasing a market that will more than double from a forecasted $3 billion this year to $7.7 billion by 2012.

They have reason to be optimistic. Other key statistics are on their side. The federal government estimates the number of seniors in the U.S. will nearly double to 71.5 million in 2030 from 37 million in 2006.

Older folks are what I call “high touch” patients. They need a lot of medical attention. They also prefer to live at home rather than retirement centers.

Either way, routine medical visits pose transportation and other challenges. So, more healthcare at home will remain a growing market with an expanding customer base for several decades.

Then there are the patients with chronic illnesses, much of them related to obesity. Chronic diseases like diabetes, heart disease and hypertension, kill more than 1.7 million Americans a year, accounting for seven in 10 deaths.

This Atom Got Smashed but Is Poised for a Turnaround

The GE move makes more sense than some previous attempts Intel made to move beyond its reliance on computer sales. It got the stuffing beat out of it for putting money in Clearwire, ultimately writing off nearly $1 billion for its ill-fated investment in the maker of high-speed wireless modems.

Here’s a hedging strategy that makes more sense: In March Intel said it would join forces with an offshore semiconductor maker. That’s a rare move for a company that prides itself on internal innovations and self-made products.

Then again, it shows CEO Otellini is flexible in pursuit of profits. Intel is sharing microprocessor technology with Taiwan Semiconductor Manufacturing Co. (TSM: NYSE), a big player in mobile devices.

The collaboration will allow Taiwan Semi to build what are known as “systems on a chip” based on Intel’s Atom microprocessor. That will expand Intel’s reach into handheld phones, portable Internet devices or other consumer electronics.

Introduced just over a year ago, Atom had almost instant smash success because it packs a lot of transistors on a small substrate and uses less power in the process.

However, sales tanked in this year’s first quarter as makers of mobile devices worked off product backlogs. Atom microprocessors and chipsets generated $219 million, a decline of 27% from fourth quarter 2008.

Intel vice president Sean Maloney says the Taiwan Semi collaboration will jump Intel to the front of the line. It will speed the company’s entry into markets for mobile devices by three to four years.

And the plethora of mobile devices will continue despite, or perhaps because, of the recession. Sales of homes, cars and trucks fell off a cliff last year.

By contrast, Gartner, the research company, estimates cell phone sales to consumers fell 4.6% in last year’s fourth quarter to 314.7 million units. Gartner predicts a recovery next year.

That gives Taiwan Semi time to pitch Intel chips customized for mobile applications, a global market with annual sales of more than 1 billion units. No wonder Intel was willing to spend two years negotiating the partnership with Taiwan Semi.

Intel also expects growth in the new category of mobile computers called “netbooks.” Designed for surfing the net, exchanging e-mail and using web-based applications, these are stripped-down laptops.

Netbooks could start paying off for Intel in the next two years. ABI Research predicts a fourfold increase in sales from a projected 35 million units this year to 139 million in 2013.

New Core i7 Microprocessors Set Industry Standards

Last November, Intel generated quite a stir in tech circles when it introduced the Core i7 microprocessors. The family of three chips boasts four cores, called Quad-cores, for more speed and performance.

Think of it as being four microprocessors on a single integrated circuit. Together they pack a lot of computing power. Core i7 chips contain 731 million transistors.

Core i7 became the first product to feature the micro-architecture code named Nehalem. Intel likes to name its chips. As it turns out, Nehalem is a river in Oregon not far from a plant it operates in Tillamook.

The new processor set two records in performance tests. The Core i7 became the first chip to exceed a score of 100 points on this benchmark chart. Appropriately enough, it came it at 17 points faster.

Along the way, Intel thrilled environmentalists. Core i7 chips speed such intensive applications as video editing, 3-D computer games and Internet television by as much as 40%.

But the processors don’t need any extra electrical power. Don’t underestimate the importance of green marketing.

Out here near Silicon Valley, the green movement remains a visible and powerful force. California is the state that wants to ban plasma television screens because they allegedly draw as much juice as a refrigerator.

Intel posted a video of an executive explaining how the processors achieved their increased performance-to-energy ratio. It’s called Turbo Mode, which the company bills as an “entirely new process technology for power.”

Here’s how it works: a “power gate” turns off cores in the chip that would otherwise be left idle but that would still draw power when they’re not in use. In turn, that power gets routed to cores actually working.

Intel says the Turbo Mode will be a standard feature across the entire Nehalem family. That includes versions for mobile computing due out next year.

Intel Casts a Long Shadow on One of Its Oldest Rivals

I grew up in Kansas City during what might be described as the golden age for automobiles, the mid- 1960s to the early 1970s. Detroit was still releasing stylish new muscle cars, and there were still plenty of great designs from the 1950s cruising the streets.

The father of one of the neighborhood girls was a racecar driver. We would occasionally go to his shop to ogle the hot new machines.

In fact, we also had running bets to see who could guess the exact year a particular car was made as we walked through the neighborhood. This wasn’t for money. It was for pride.

Of course, one of our main passions was arguing about which was better: Ford or Chevy. In personal computers the big struggle is between Mac and the PC, as evidenced by Apple’s popular television commercials.

Not to be outdone, the folks who follow chips also have a long-running rivalry: Intel versus AMD.

Both are storied Silicon Valley firms founded at roughly the same time, which accounts for much of the rivalry. AMD celebrates its 40th anniversary this year; Intel turned 40 last year.

Lots of people seem determined to figure out which is better: AMD or Intel. A Google search yielded 8,710,000 results. There’s an even a Web site devoted to the topic. Appropriately, the address is http://amdvsintel.com.

There you will find dozens of articles examining distinctions between microprocessors made by both companies. Clearly AMD makes some great products that gadget freaks love, like the graphics processor for the popular Nintendo Wii game console.

But from a financial standpoint, there’s really no comparison. AMD’s stock is in the cellar, recently closing below $4. That’s less than one-third the value of Intel’s shares.

Then again, AMD is losing money. It lost $414 million, or 66 cents a share, in this year’s first quarter. In the similar period last year it lost $364 million, or 60 cents a share.

Intel will spend nearly $5 billion more on research, new plants, marketing and overhead than all of AMD’s 2008 revenues of $5.8 billion. Intel generates $11 billion in cash, nearly twice as much AMD does in total sales.

The fierce competition has been particularly heated lately after AMD filed anti-trust litigation against its much larger rival. Now in its fourth year, that battle appears to have played a role in an investigation by the European Union (EU), which ruled on May 13 that Intel was guilty of monopoly abuse.

EU regulators fined Intel a record $1.45 billion, a fraction of the $10.6 billion in cash the company has on hand. Investors took the long-expected decision in stride, shaving a mere 8 cents off Intel’s stock price, which closed that day at $15.13.

CEO Otellini said the company will mount a vigorous appeal. Otellini emphasized the decision will have no effect on Intel’s investment in future products and innovative manufacturing procedures.

“The natural result of a competitive market with only two major suppliers is that when one company wins sales, the other does not,” he said in a prepared statement. In a veiled swipe at AMD he added the evidence actually shows customers reward results but when companies don’t perform, “the market acts accordingly.”

2008 Earnings Report Reveals 20,000 Job Cuts, Saving $1.1 Billion

Less than a month after Intel posted its 2008 earnings in mid-January, investors dumped the stock. They overreacted.

Sure, net income dropped 24% to $5.3 billion. But much of the decline came from write-offs related to Clearwire and other investments.

Repurchasing 324 million shares of Intel stock ate up $7.1 billion. About $7.8 billion worth of common shares remain up for repurchase under a 2005 authorization to buy back up to $25 billion in securities.

Of much greater significance, Intel boosted operating income in the midst of a severe economic downturn. Operating income rose 9% to $9 billion.

Furthermore, Intel indicated it is poised to respond to the recovery with new efficiencies. In its 10-K for investors, the company disclosed it shed nearly 20,000 jobs since 2006 to a total of 83,900 at year-end 2008.

That’s critically important for future profitability. Think of it this way: Intel’s revenues will rise on a shrinking employee base.

At some point, the cost of paying separation benefits decline so much that new revenues fall to the bottom line. The company expects annual gross savings of $1.1 billion from a slimmer workforce.

Thus, Intel will head into the recovery a much stronger company. It has the right microprocessors for a fast-changing technological world. It is investing heavily in new products and processing.

Intel also is spending heavily to keep its name burnished in the minds of customers. And the company regularly realigns to drop unprofitable business units.

Recommendation: Consider Intel (INTC:NASDAQ) for your portfolio.

Originally published July 27, 2009.

Other Related Topics: BreakAway Investor , Computer Industry , Information Technology , Michael Robinson

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