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Intel, an Investment Opportunity

December 13, 2011 | About:
Mara Kohn

Mara Kohn

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Intel (INTC) is the largest chip maker in the world. It develops and manufactures microprocessors and platform solutions for the global personal computer market, which it is currently leading.

In the last few decades, Intel has benefited to a large extent from the proliferation of PCs and has done better than competitors and reasserted its footprint in the microprocessor market.

Its good performance can be seen in its research and development budget that has no match. In addition, the company has the financial resources to invest in cutting-edge semiconductor manufacturing technologies. All of this allows Intel to push processor performance and reduce manufacturing costs in a much faster pace than its competitor, Advanced Micro Devices Inc. (AMD).

Least but not last, Intel has recently acquired McAfee, the antivirus and security software maker, for $7.7 billion. Although this purchase has been somewhat surprising for the experts in the sphere, Intel believes that this deal has been good because security issues are increasing in importance with the growth of Internet connected devices, including smartphones, tablets, etc. With this new security service, Intel expects to provide more effective security solutions.

Intel also has the opportunity to integrate McAfee's security software into its desktop and notebook chips. This will provide another opportunity for the firm to enhance its products to differentiate itself from AMD.

It appears Intel has aggressive plans to grow and widen its lead in the market. Its $15.20 billion of cash has enabled it to take advantage of market opportunities.

Actually, the firm recently launched its Sandy Bridge chips, combining both computer and graphics processors onto the same silicon.

However, Intel may suffer certain risks too. The main disadvantage that the company may have is the maturity of the PC market. Furthermore, there is a new company that is trying to spread, namely, ArvinMeritor Inc. (ARM). This is a company in charge of designing smartphones and tablets.

ARM has been highly successful in chips for mobile devices and tablets because of the low power consumption of its designs. Nonetheless, Intel's Atom processors are expected to become much more competitive in the next couple of years.

What about last quarter results? They have been great in 2011. The firm has been able to make $10.9 billion in cash and short-term investments vis-à-vis its $7.1 billion in debt.

The third quarter has seen Intel growing strongly and exceeding investors’ expectations.

Intel has record revenues of $14.3 billion, an increase of 29% year on year, with net income of $3.7 billion increasing 24% over the same period, thus doing away with forecasts.

Daniel Salmon of BMO Capital Markets said at an interview: “Despite the fierce market competition that Intel may suffer in the next few years, last quarter results have shown that Intel is moving in an upward trend. Undoubtedly it is a good pick for investors.”

Mr. Salmon is right. Intel has a good performance. Furthermore its shares are currently trading around $23.75. Isn’t Intel worth looking at?

He goes on saying that “a company with an operating margin of 32.77% and a ROE of 27% is really attractive for everyone.”

EPS are $2.31 and the earnings ratio is 10.28. Earnings in the region are expected to be of $2.56 in 2012.

Generally speaking, revenue is expected to grow 26%, including the acquisitions of McAfee and Infineon's wireless chip unit, both of which closed in the first quarter.

McAfee and Infineon's wireless chip business will contribute about $3.6 billion in revenue.

As every investor knows, a good performance is always accompanied by a good management strategy. The president and CEO, Paul Otellini has been with Intel since 1974. Stacy Smith became CFO in 2007. Before becoming CFO he held various positions in the company. The former CFO Andy Bryant is now working as chief administrative officer. Finally, Jane Shaw serves as chairman.

It is very interesting to see that the chairman and CEO positions are clearly separated. This is of particular interest to shareholders.

Rating: 3.5/5 (11 votes)

Comments

redscourge
Redscourge - 2 years ago
ArvinMeritor Inc. is not a competitor to Intel, ARM Holdings plc (on the London Exchange) is a competitor to Intel.

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