Intel (INTC) is the largest semiconductor chip maker, based on revenue. Intel's chips are used in computers and communication devices. The company has its headquarters in Santa Clara, California, and it was founded in 1968. Most investor think of Intel as being a mature technology company, and that an investment in Intel would be considered to be more of value play than an investment in a fast-growth technology company. Intel's stock does trade like a value investment. The stock has a price to earnings ratio of 11.6 and pays a dividend of $0.84 with a 3% yield. Intel's stock price is currently around $28, and the stock has traded in a 52 week range between $19.16 and $29.05.
I believe that despite Intel's large size (market cap $140 billion) it could still be considered a growth company. Intel's 2011 year-over-year revenues increased by 21% and its net income increased by 13%. These earnings were achieved despite the fact that Intel's earnings "rose only 6% in the fourth quarter, as the impact of last year's catastrophic flooding in Thailand, which devastated hard-drive production, began to affect PC sales."
Intel's earnings increases have been "Fueled by strong sales growth in its core chip businesses and boosted by a major acquisition" of Infineon for $1.4 billion - leading semiconductor supplier Intel Corp. in 2011 attained its highest annual market share in more than 10 years, according to the IHS iSuppli Competitive Landscape Tool from information and analytics provider IHS (IHS).
In 2011 Intel increased its semiconductor market share by 2.5 percentage points to 15.6%. The 15.6% market share is the company's highest percentage of market share in at least ten years. None of Intel's competitors have market shares that even come close. Samsung (GM:SSNLF) market share is 9.2% while Texas Instruments (TXN) market share is 4.5% and Toshiba's (OTC:TOSBF) market share is 4.1%.
Why Intel will increase sales growth:
Intel has been able to increase sales growth because of increased demand for personal computer microprocessors, and NAND flash memory used in consumer and wireless devices. For instance in the personal computing business Intel will be "focusing on increasing the sales of its higher-margin chips that are used in ultrathins, the smaller, lighter computers that Intel calls Ultrabooks. Chips for the ultra-thin notebooks typically cost many times what PC chips cost, in large part because they are more energy-efficient, so profit margins are higher." Intel recently announced that it will spend hundreds of millions of dollars to promote its new Ultrabook computers. Intel has also increased its software and services business - to the tune of 7% growth in revenue. Finally, Intel will realize an increase in revenues because of its entry into the cloud computing business.
Intel announced that it would purchase Infineon for $1.4 billion in August of 2010. Infineon makes chips that can be used in laptops, netbooks and most importantly smartphones, including the Apple iPhone. The purchase of Infineon has given Intel a strong presence in the market for smartphone chips, WiFi , 2G, 3G and 4G LTE products.
The Infineon purchase was completed in 2011. When the completion of the purchase was announced Dr. Hermann Eul, president of Intel Mobile Communications said "With the projected growth of mobile computing and its convergence with wireless device market segments, it is our intent to rapidly apply Intel's resources and assets to further grow our wireless business and move Intel Mobile Communications into a leadership position."
Intel also announced that it purchased McAfee, an internet security company, for $7.7 billion in August of 2010. The traditional thinking is that Intel wanted to make inroads into the growing cloud security business. "The number of connected devices is expected to grow from 1 billion to 50 billion by 2020, according to industry estimates."
I believe that Intel stock will move higher for the following reasons:
Intel's earnings are moving in an upward trend. The company increased revenues by more than 20% in each of the last two years, and predicts that in 2012 its revenue growth will be in the high single digits. One of the reasons that the company is increasing earnings is because its margins are the highest in the industry. Intel's gross margins are 62.5%, its operating margins are 32.3% and its profit margins are 23.9%. The company expects that gross margins will exceed 64% in 2012.
As a result of its purchases of McAfee and Infineon, Intel will be able to grow its communication and networking businesses. The company is also growing its services businesses, and in the fourth quarter earnings call, Intel's CEO Paul Otellini said that the company's "Storage revenue was up 42% to a new record high, and our Embedded Communications Infrastructure business was up 18%, also to a new record." In addition, Intel sees great potential and expects to grow its personal computer purchases in emerging markets such as China, India and Indonesia. For example, China which has the largest personal computer market on earth "has a household penetration rate of just 35%, versus almost 90% in the U.S."
Intel combines reasonable valuations along with a competitive dividend and growing earnings. I believe that these are attributes which are attractive to both growth investors and value investors, and as a result the stock price will continue to move higher.