There is too much focus on the PC market when we talk about Intel (NASDAQ:INTC), which is not entirely wrong due to the heavy dependence of the company on the PC segment. However, the demise of the PC industry is overplayed, in my opinion. There is no doubt that for almost two years now the demand for tablets and other mobile computing devices is rising but demise all together for the PCs is not probable at all. Furthermore, Intel has a lot more in its arsenal to counter the slowdown in the PC segment, in my opinion. Here are a few reasons an investor even new to this industry might find very appealing.
Liquidity Position and Growth
The company has operating cash flow ttm (trailing twelve months) of $20 billion and a free cash flow ttm of $6 billion - this strong liquidity position gives Intel the liberty to spend more on growth and innovation than any of its rivals. The net cash and investment position for the company currently stands at $13 billion, which is also a significant advantage for the company. Moreover, the 5-year growth rates for revenue, earnings per share and dividends are 8.4%, 19.8% and 12%, respectively, which are quite marvelous. And these averages though marred by a slow couple of years of PC sales are still intact indicating the company still has some value to bring to the table.
Research and Development Expenditure
The semi-conductor industry is a battlefield for innovation and novel ideas and each and every constituent of this industry is fighting with its latest ammunition of faster, smaller and reliable chips. However, the cost of fighting this battle is a huge expenditure on R&D to gain first mover's advantage. The R&D expenditures made by Intel are rising and on the verge of double-digit growth amounting to a staggering $4.8 billion in the second quarter of 2013 alone and approximately $11 billion for the FY12-13. In other words, the company is spending almost 37% of its revenue on research and development.
New Products on the Horizon
Intel has announced a number of products with great potential. The top among the line is the XMM 7160 chip based on 4G LTE technology to be released by the end of August. This chip is multi-mode and allows the device users to run and toggle between 2G, 3G or 4G LTE networks at their convenience. Also keeping in view its competitiveness, this LTE chip is going to be 12% smaller than its Qualcomm (NASDAQ:QCOM) counterparts and have up to 30% power saving capacity. The XMM 7260 is also under process and is set to be released in the first half of 2014 and will support advanced LTE features - carrier aggregation being one of them.
The chip is to be manufactured at Intel's very own fabrication department resulting in cost cuts and red-tape reduction. Among other products are two tablets also set to be released next by the name of "cherry trail" and "willow trail." The "willow trail" will be able to support the latest android and windows phones using a GEN 9 GPU. All these products are expected to increase the company's revenue by at least 5% with the potential of even more.
The PC Sales Paradigm
The global PC market is still worth $350 billion despite a global economic slowdown and a change in industry trends. Moreover, the video gaming industry, currently valued at $10 billion is expected to reach $86 billion in the next three years with more than 55% pertaining to the PC segment. So, the future of the PC is not as bleak as some people might suggest. It is true that with the advent of the likes of android and iOS systems, the up-gradation of the PC has slowed but as discussed earlier, the company is stepping into these new markets with the latest technology - and given the size of its balance sheet and the earnings potential, Intel can easily pull off this transition to mobile computing devices and ace it for that matter.
The overall financial position of the company is pretty good and after the overall slide of 17 percent (though it has recovered some) the stock is set to take off. From the current developments to future earnings expectations, the stock looks attractively priced, especially with the new products about to be launched. Until then, an investor can benefit from the 4% dividend yield making the wait worthwhile.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. IAEResearch is not a registered investment advisor or broker/dealer. This article was written by an analyst at IAEResearch and represents his/her personal opinion about the companies mentioned in the article. The article is for informational purposes only and it should not be taken as an investment advice. Investors are encouraged to conduct their own due diligence before making an investment decision. I am not receiving any compensation (other than from Seeking Alpha) for this article, and have no relationship with the companies mentioned in the article.