Intel Corp. (INTC, Financial) ended 2016 in the green, but the stock has failed to find its way into the green this year as it is down nearly 5% year to date.
The PC market has been in decline since 2012 as growth and competition from smartphones and tablets has eased. Therefore, the company is aggressively focusing on other growth areas such as self-driving cars, Internet of Things and cloud computing to thrive in the coming years.
Although the chip manufacturing giant generates most of its revenue, around 33%, from its client computing business, its data center business carries on growing at a healthy rate. In 2016, the revenue from its data center group came in at 17.24 billion, up from 11.2 billion in 2012.
Also, Intel formed an alliance with BMW (MIL:BMW, Financial) and Mobileye (MBLY, Financial) last year to develop self-driving cars. Later on, the company acquired Mobileye for $15.3 billion to gain a strong foothold in the autonomous cars market. Moreover, the company recently detailed that the alliance has brought Delphi Automotive (DLPH, Financial) on board to speed up the development of its self-driving car.
This appears to be good news for Intel; it will help advance its autonomous vehicle technology as Delphi is well known for its expertise in the system integration of safety systems and automotive electronics. Furthermore, Delphi could also provide its software as well as hardware components to customize the autonomous car solution.
Apart from this, the chip manufacturing has also signed a deal with Amazon (AMZN, Financial) to provide Atom x5 processors and RealSense cameras for its new upcoming Echo devices: Echo Show and Echo Look. Amazon believes that Intel’s products will help it enhance its industry-leading and innovative products.
Amazon’s first product of the Echo family used a digital media processor, but Amazon chose Intel’s powerful processor for its Echo Show so that it can stream and display information as well as media entertainment.
While Amazon is set to launch its Echo Show on June 28, no release date for Echo Look has been revealed by the company. Currently, the market for intelligent home speakers is tiny, but it is projected to grow at a robust rate in the years ahead. In 2016, global shipments for intelligent home speakers rose more than 440% to reach approximately 6 million units. Moreover, shipments are forecasted to increase tenfold by 2022.
Moving ahead, it is likely that Amazon will expand its relationship with Intel in the future as it continues developing new AIexa-enabled products. Apart from this, other players might also consider using Intel’s products to compete efficiently against Amazon’s leading Echo products.
When it comes to the dividend, Intel offers a healthy dividend yield of 3% and has a solid history of past payout growth. Over the previous two years, the chip manufacturing giant has made three increases to its quarterly payout, comprising its most recent 5% boost, from 26 cents to 27 cents, during its last earnings report.
Most significantly, the company’s earnings are approximately twice what it pays in dividends, suggesting it still has plenty of room to grow its dividends in the future.
On the other hand, the stock currently trades at a price-earnings (P/E) ratio of 15, suggesting it is undervalued. As an outcome, shareholders should consider adding Intel to their portfolio as its future looks admirable.
Disclosure: No position in the stocks mentioned in this article.
