New Threads Only:  Add to Google Reader or Homepage
New Threads & Replies:  Add to Google Reader or Homepage
Forums are for serious investors only. GuruFocus Forum Rules.

Forum List » Value Ideas and Strategies
Share and discuss value investing ideas and investing strategies.
New Topic
Goto Thread: PreviousNext
Goto: Forum ListMessage ListNew TopicLog In
Intel Corporation (INTC) - Stock Analysis
Posted by: David Kerr (IP Logged)
Date: September 7, 2013 02:55PM

Company History and Business

Intel Corporation (INTC) designs and manufactures integrated digital technology platforms. The platforms that the company manufactures primarily consists of a microprocessor and a chipset. Intel primarily distributes these these digital technology platforms to original equipment manufacturers, original design manufacturers, and industrial and communications equipment manufacturers. Intel’s platforms are used all over the world. You will find Intel platforms in personal computers (including Ultrabooks), smart phones, tablets, data centers, automobiles, medical systems and automated factory systems. You can find Intel platforms in products with companies such as Acer, ASUS, Dell, Hewlett-Packard, Lenovo, Samsung, Motorola and others. It is nearly impossible to get through your day without running across a handful of items that run off of some form of microprocessor.

Intel was initially founded in 1968 by Gordon Moore and Robert Noyce, who were Intel’s first two employees. The company’s total initial investment was $2.5 million in convertible debentures and $10,000 contributed by Arthur Rock, who was an investor and Chairman of the Board. Andy Grove joined Intel at this time as Director of Operations.

Three years later, in 1971, INTC completed their initial public offering (IPO) and raised $6.8 million ($23.50 per share).

1972 - Intel Corporation acquires Microma, a digital watch company.

1974 - Intel releases the first industry standard microprocessor.

1978
- Intel sells their previously acquired company, Microma.

1979
- Andy Grove becomes President and Chief Operations Officer of Intel Corporation.

1981
- IBM begins to use Intel’s microprocessors in their first personal computers.

1982
- IBM purchases 12% of Intel for $250,000.

1987
- Andy Grove becomes Chief Executive Officer of Intel Corporation.

1990
- Robert Noyce deceased, and Craig Barrett is promoted to Executive Vice President.

1993
- Craig Barrett is promoted to Chief Operations Officer. Intel introduces the “Pentium” microprocessor.

1998
- Andy Grove steps down as CEO and Craig Barrett takes his place.

2005
- Apple Inc (AAPL) announces that it will implement Intel’s processors in their products.

2010
- INTC acquires McAfee Security for $7.6 billion. The company also acquires Infineon (a German semiconductor manufacturer) for $1.4 billion.

2011
- INTC acquires Telmap, an Israeli-based services company, for an undisclosed price.

2013
- Executive Vice President and COO Brian Krzanich elected Intel’s new CEO. INTC also acquires Mashery, a USA-based cloud software company, for $180 million. Software companies Aepona (Ireland), StoneSoft (Finland - $389 million), and OMEK Interactive (Israel) are also acquired.

Intel completely dominates the microprocessing market in terms of laptops and desktop PC’s, and is the world’s largest chipmaker based on revenue and unit shipments. As far as microprocessing goes, INTC has about 85% of the total market share.

Intel can basically be broken down into three major segments:

- The PC Client Group (64% of 2012 sales), which makes microprocessors and related chipsets for laptops and desktop PC’s.
- The Data Center Group (20%), which makes products such as microprocessors, chipsets, motherboards and many other applications that are used for cloud computing.
- The Other Intel Architecture (8%), which has to do with Intel’s smaller businesses that offer chipsets for mobile internet devices and whatnot.
- The software and services group and “other” account for the remaining 8%.

Intel and Advanced Micro Devices (AMD) have been battling for decades over dominance in the microprocessor market. In 2006 AMD forced Intel to lose market share by improving their product line as well as cutting prices at the same time. Later that year, however, Intel turned the table around and improved product development, manufacturing, and cost structure drastically. INTC has since regained its market share and now ships over 80% of the world’s microprocessors.

Intel clearly still dominates the market, although this does have a lot to do with AMD’s struggles with constantly restructuring and attempting to reduce operating costs. AMD is currently increasing their focus on gaming and cloud-based products. At the same time, Intel is trying harder and harder to enter the smartphone and tablet market through an ongoing partnership with Microsoft (MSFT), as well as focusing a lot of investing power towards cloud-based hardware.

Financial Strength

INTC has put out some pretty steady and impressive growth numbers over the past decade. For instance, Intel’s revenue per share has gone from $4.55 at the end of 2003 to $10.34 at the end of 2012, with an average growth of 8.2% over the last 10 years. The company’s book value per share has almost doubled as well, going from $5.72 at the end of 2003 to $9.92 at the end of 2012, with average growth of 6.2% over the last 10 years.

At the second quarter of 2013 INTC reported total current assets of $29 billion (with $10 billion being cash), and total current liabilities of $11.3 billion. Intel almost has enough cash to pay off all of the company’s current liabilities. With a gross margin of 59% and an operating margin of 23.44%, INTC is able to focus more of their revenue on business operations, and they are able to control their costs and expenses better than 91% of their peers.

Intel pumps out a pretty impressive dividend as well. INTC’s current dividend yield is 3.98% ($0.225 quarterly), which is greater than 94% of the companies in the semiconductors industry. Intel has a five year 13.4% dividend growth rate. Intel’s dividend per share has seen an increase every year over the last 10 years:



Management

Apparently the management effectiveness of the company’s officers is paying off, because Intel possesses an impressive return on assets percentage of 12.01%, a return on equity of 18.49%, and a return on invested capital of 13.94%. With these numbers, INTC is able to reinvest their earnings more efficiently than 91% of their competitors.

Newly elected (May 16, 2013) CEO Brian Krzanich has quietly made his way through the ranks and now rests at the top of the company. Not much is known about the new CEO, except for the fact that he is very good at what he does. It has been said that he has a very engaged, but quiet management style, and that engineers who do not meet their deadlines or targets tend to not stay in positions of responsibility.

Valuation

We can always take a look at the conventional P/E method by subtracting the $10 billion in cash Intel currently holds from the $113 billion market cap. This shows that Intel’s operations can be bought for $103 billion. With a net income of $9.5 billion (TTM), Intel is trading at a P/E of 10.84.

Let’s take a look at the discounted cash flow analysis. INTC’s current Earnings Per Share is 1.85, and has a previous 10-year EPS growth rate of 9.2%. Let’s set the terminal growth rate at 4% and the discount rate at 12%. This gives us a fair value of $25.91 per share, which is roughly 14% higher than the stock is trading.

According to Peter Lynch’s calculations, the stock is currently undervalued. The current Peter Lynch value for the stock is $39.32. Chart below.



Risks

Intel is currently in the process of transitioning chip production from PC-based to cloud-based. The company definitely realizes that this is the place to be, so now it’s just a matter of getting there.

The PC market is going down quickly because of tablets and smartphones. According to the International Data Corporation, PC sales are expected to decline 7.8% in 2013.

Pressure is on Intel to focus on investing in creating efficient chips for cloud-based servers, smartphones, and tablets.

Intel is relatively new to the smartphone business, and Qualcomm (QCOM) completely dominates the smartphone processing business with roughly 43% market share.

The market is growing and advancing rapidly, and Intel needs to make sure that they can keep up with the fast paced growth.

Catalysts

Intel has always been dominant in the PC market. The company has definitely shown that it has the capability to become a dominant force with big hardware in other fields as well.

Intel is also currently providing some of the chips used in Cisco’s (CSCO) cloud-based servers.

The company’s management has forecasted that 30% of the company’s revenue could come from cloud by the end of the decade.

Intel is currently working with Microsoft (MSFT) to enter the smartphone and tablet area. Microsoft has gone from a 0% market share in tablets in 2012 to 7.4% in 2013.

End Notes

Disclosure: No current position held at the time of writing.

Disclaimer: The opinions and ideas in this article are for informational and educational purposes only. They are not a recommendation to buy or sell any stock at any given time. As always, it is imperative for each individual investor to do their own due diligence and perform their own research on any and all stocks before making an investment decision.


Stocks Discussed: INTC, QCOM, CSCO, MSFT, AAPL, AMD,
Rate this post:

Rating: 3.7/5 (23 votes)



Re Intel Corporation INTC - Stock Analysis
Posted by: SeaBud (IP Logged)
Date: September 8, 2013 05:34PM

Good financial analysis. You miss one factor I believe is very important. Intel has the largest and best fabs in the world. They are constantly one generation ahead in process and feature sizes in factories that cost Billions to build and with engineering skills existing very few other places. So, the negative is that this is a capital intensive business.

However, this manufacturing prowess creates a moat that Intel has relied on during times of stress (such as the recent plunge in PC sales and failure to capture mobile sales). Intel at a 4% dividend and historically low valuation is nice because they have a history of turning the corner and dominating markets they want. I think they will do this in mobile. Their fab process buys themtime to attack markets. Pretty heavy long on Intel (though I am a tech guy, I don't love tech stocks - but Intel is a manufacturing and tech play).


Stocks Discussed: INTC, QCOM, CSCO, MSFT, AAPL, AMD,
Rate this post:

Rating: 0.0/5 (0 votes)



Re Intel Corporation INTC - Stock Analysis
Posted by: David Kerr (IP Logged)
Date: September 8, 2013 11:58PM

SeaBud,

That is an excellent point. Intel has a huge advantage over AMD (their leading competitor) in this area. Intel opened their first fab in 1972 (however this particular plant is now closed), and now operates 10 different fabs, with their 11th currently under construction (Fab D1X). Intel is committing roughly $2 billion in bring up costs for D1X just this year, which is scheduled to be operational in 2015. It will be dedicated to the 450mm wafer. Ever since 2009 AMD has outsourced their production, and the company does not own any of their own fabs.

I love how Intel can be a tech an a manufacturing play; I think you hit that right on the spot. That's what makes them so unique. It will be interesting to see how they pan out in the mobile market vs Qualcomm. Qualcomm being fabless, like AMD, relieves the company of the burden of having to invest billions of dollars each year in process development and wafer fabs like you mentioned.

- David Kerr



Stocks Discussed: INTC, QCOM, CSCO, MSFT, AAPL, AMD,
Rate this post:

Rating: 0.0/5 (0 votes)





Sorry, only registered users may post in this forum.

Please Login if you have an account or Create a Free Account if you don't
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK