Even in the wake of an unprecedented rise in global economic uncertainty and predominantly negative market sentiment, chip stocks have managed to maintain a favorable upward run, largely due to a diverse product portfolio and a massive share in the global market. As a result, chip stocks have largely remained safer investment options compared to other leading industries that have faced the brunt of the recent economic meltdown.
In this article, I have chosen the world's leading chip manufacturer, Intel Corporation (INTC), particularly because the company has had a good run in recent years, reporting sizable year-end profits, recording impressive quarterly growth, and establishing a strong presence in emerging global markets in a bid to widen its competitive moat. Intel has done this by introducing original products, investing in profitable ventures, planning new acquisitions, and introducing important reforms.
In terms of revenue, Intel has been the world's largest manufacturer of semiconductor chips for almost a decade. Intel is the manufacturer of a series of microprocessors, embedded processors, motherboard
chipsets, integrated circuits, flash memory, network interface controllers, graphic chips among a range of other essential computing and communications devices. This shows just how diverse is Intel's product portfolio; the company has a massive market share across the globe, with a strong presence in all major markets.
A short period of sluggish trading and increased market uncertainty caused the stock to briefly plummet to as low as $19, but the stock made a strong comeback, rapidly regaining its upward momentum amid positive financial indicators and investor loyalty that the company has traditionally enjoyed. Intel has an enormous market capitalization of nearly $136 billion, with an average trading volume exceeding $44 million.
With a price to earnings ratio of almost 11.25, Intel offers investors more than 20 cents per share in dividends on earnings per share of almost $2.4. This has allowed the company to enjoy mainly favorable investor sentiment in the last four fiscal quarters.
Intel has a long tradition of good dividend payout ratio and high dividend yield. In the last fiscal quarter, the company reported dividend yield of nearly 3.12%, offering investors 21c a share. Intel currently has a little shy of 5 billion outstanding shares that it can use to arrange more capital in a bid to expand its scale of global operations and market share.
A low debt to equity ratio of 0.16 implies that Intel has done well to manage its debts ensuring investors of stability even amid market uncertainty. Currently poised at 1.09, Intel has an aggressive beta, although it is relatively lower than that of other chip stocks [Advanced Micro Devices Inc (AMD) - 2.22, and Texas Instruments Inc (TXN) - 1.24], allowing the company greater resilience in the wake of negative market conditions or high-risk trading. Over the last two quarters of 2011, Intel showed impressive signs of growth in both sales and revenues and profit margins grew by nearly 24%.
A competitive analysis of the stock against two leading competitors and arch-rivals in the chip manufacturing industry, Advanced Micro Devices and Texas Instruments, will help us in determining Intel's competitive moat. AMD and TXN are two of the world's leading chip manufacturers that have traditionally been locked in a perpetual battle for supremacy and greater market share of the global technology market.
However, Intel still comfortably dwarfs both its leading competitors in terms of total market capitalization; seeing how AMD ($5.21 billion) and TXN ($38 billion) collectively manage only $43 billion in total market capitalization against Intel ($136 billion). Even in terms of revenue growth in the last few quarters, Intel (21.20%) has comfortably outshone AMD (2.5%) and TXN (-3%). Intel even fares better in terms of earnings per share ($2.4 against 67c and $1.9).
All these positive financial indicators suggest that Intel has maintained a wide competitive moat in a relatively competitive global market, which has allowed it favorable investor sentiment over the years even amid predominantly negative market conditions.
In recent years, increased competition from smartphone processor manufacturers Texas Instruments has encouraged Intel to adopt an aggressive approach, pushing forward with its drive to increase revenue generation from existing markets, and expanding into newer markets by investing in new technologies and introducing a new range of diverse products.
The company has recently made a couple of important announcements that are expected to promise the company higher earnings as well as greater market share. For example, Intel's plans to invest in future of automotive technology are speculated to bear good fruit, delivering new in-vehicle infotainment solutions, seamless on-the-go mobile connectivity, compelling applications compatibility and advanced driver assistance systems.
Intel has also announced successfully expanding the ongoing NAND Flash Memory Joint Development Program in collaboration with Micron Technology to Include Development of Emerging Memory Technologies. Intel has also recently signed a MoU with DENSO Corporation to collaborate on next-generation in-vehicle information and communication systems.
The company also also successfully announced the expansion of its smartphone products portfolio with a range of new products and services to cater to the ever-increasing global market for smartphone technologies. The range of new smartphone SoCs and communications products disclosed by Intel are expected to expand its smartphone product portfolio and customer ecosystem.
Looking at Intel's most recent market performance, the financial indicators for the last four quarters, prevailing market conditions, and a range of important and strategic announcements in the first quarter, I expect Intel to record higher revenues and achieve a greater market share.
A range of new product innovations, strategic partnerships and important technological advancements are also expected to offer Intel the capacity to significantly increase its revenues margins in the current fiscal year. With all these promising new developments, and with an important reminder that Intel has an aggressive beta of 1.09, I recommend buying Intel now.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
