Intel (INTC), a chipmaker for personal computer manufacturers, showed a modest growth in its latest report. The company's revenue went up 2% from the prior quarter. Intel's sales were driven by its Data Center Group, with sales up 6.1% on revenues of $2.7 billion. However, its net income fell by 2%, and Intel's stock went down 1% on the news. But our question is how should you trade the other major personal computer-related companies based on Intel's revised outlook?
Intel had forecast a low single-digit growth and a gross margin of 58% and 62% for 2013. However, Intel now predicts a flat revenue and a gross margin of 57% and 61%. The company cited continuing weak personal computer sales. Intel also expects the second half of 2013 to be weaker than the first half of the year.
Intel's revenue and net income missed Wall Street's expectations, but the company is going strong. It trades around 1.96 EPS for 2014. Its management said the company's top priority is the continued penetration of Intel's chips in the booming mobile market.
Despite the declining net income, RBC Capital Markets upgraded the stock with a price target of $28.00, compared to the stock's current price of $22.79. However, overall sentiment from investment firms is mixed, with Evercore downgrading the company and FBR upgrading it. The fund interest is positive, with Martin Whitman appearing quite bullish, upping his stake by 600%.
Intel has long been considered a prominent member of the personal computer industry. It is also a barometer to read a broader economic trend. The company's ties to personal computers make it one of the select companies that we look toward when judging how global growth will unfold. Its fate has ramifications on companies such as AMD (AMD), Texas Instruments (TXN), Qualcomm (QCOM) and ST Microelectronics (STM).
AMD operates as a semiconductor company and develops microprocessor products for servers, desktop PCs, and mobile devices. The poor economic backdrop outlined by Intel also affected AMD. Though the company beat Wall Street revenue forecasts, it reported a net loss of $65 million. For the third quarter, AMD expects revenue to increase on a sequential basis by 22%. One positive joy for AMD is that its chips will be used in Microsoft's Xbox One and Sony's Playstation 4 gaming consoles.
STMicroelectronics has seen product sales slow down in Korea, but the company has positive growth initiatives in Greater China, South Asia, the Americas, Europe, and Africa. Driving market share gains in these economies will not be chips for personal computers, but key products in the automotive, microcontrollers, and imaging sectors. The company expects its revenues to be flat in the next quarter. Despite its outlook, Youlia Miteva increased Proxima Capital Management's position by 1,000%.
Qualcomm is benefiting from a strong demand for smartphones and a shift to a high-speed wireless technology known as long-term evolution. The company is the global leader in this sector. However, the market potential is attracting rivalry from companies anxious to expand into the emerging economies. Qualcomm expects full-year revenues of $24.0 billion to $25 billion, up from its prior forecast of between $23.4 billion and $24.4 billion. Its full-year earnings per share forecast fell below the expectation of analysts.
Texas Instruments, a major chips maker, narrowed its quarter two 2013 revenue expectations to $2.99-$3.11 billion compared to its initial forecast of $2.93-$3.17 billion. The strengthening demand for its chips led to a 48% second quarter profit. However, it suffered a decline in revenues. But hedge fund traders such as D.E Shaw and Daniel Och increased their positions by 600% and 100% respectively. However, the company's debt load puts it at a disadvantage to some of its peers. Worth noting is that Texas Instruments' debt-to-equity ratio is markedly higher than Qualcomm (0.06), STM (15.08), and Intel (24.91). But it is lower than AMD (570.20). Three of these companies trade in a P/E range of 12x to 23x, but STM and AMD have no such price multiple. Intel has fared well in terms of dividend yield (3.90%) compared to Qualcomm (2.30%), and Texas Instruments (3.00%). STM is the only peer to out perform Intel at 4.10%.
Intel and Qualcomm have some of the best growth prospects among the companies listed. Their stocks trade at a valuation that is not too rich for us to invest in. Despite the positive fund sentiment for Texas Instruments and STM, I believe the personal computer market has changed rapidly and growth will be difficult. But I think Qualcomm will perform well with its focus on mobile platforms.
Intel will also perform well because it is diversifying its product line. From a valuation standpoint, a PEG ratio of 0.99 is respectable given the low-growth nature of the personal computer business. The company's return on equity for the past 12 months has been 18.49%, above the industry average of 9.1%. Its profit margin of 18.13% is also above the industry average of 6.4%. At a P/E of 12.29, shares of Intel are cheaper than Qualcomm (17.48) and Texas Instruments (24.11). If you're struggling with ideas on where to put some of your investment cash in 2013, Intel could be a way to capitalize on long-term growth.