Intel: Laying The Foundation For Growth

About: Intel Corporation (INTC)
by: Vivek Gupta

On January 16, 2014 Intel (NASDAQ:INTC) reported its fourth quarter 2013 results. The following are the results insights and my analysis of the results.

Results summary:

For the latest quarter, Intel reported the revenue of $13.8 billion, up 2.6% from $13.5 billion a year earlier, and the net profit of $2.6 billion, up 6.4% from $2.5 billion a year earlier.

The operating income grew by 12.5% primarily due to rise in the revenues and lower cost of sales, partly offset by $116 million of "restructuring and asset impairment" charges. On per share basis, the earning per share stood at $0.53.

Revenue by Segment

PC Client segment generated 62% of Intel's revenue in the last quarter. The segment generated $8.6 billion of revenue in the last quarter, unchanged from the same period last year. Volumes grew 3%, while pricing declined 2%. Operating income grew by remarkable 20% to $3.4 billion from $2.8 billion during the same period last year.


The segment delivered remarkable results, particularly due to the fact that the global PC market is declining since last few quarters, which is the key worry for the company. Though, it may be early to say, but the unchanged revenues and significantly higher margins (from 33% to 39.6%) are clearly pointing towards a better future of the segment. If in the coming quarters the segment reports the same kind of performance than it could be a big sentiment booster for the company.

Data Center group delivered the record revenue of $3 billion in the last quarter, up 8% year over year. Volumes improved by 1% and pricing was up 7% year over year. Operating income jumped by about 11% to $1.5 billion from $1.3 billion during the same period last year. Data Center group showed strength across the lines of business such as cloud and storage.


The segment reported very decent results. The global data center market is under transformation phase due to rise in cloud computing, which demands more storage capacity, faster processing, and much more secure environment. That is why the company reports better pricing and margins, as the demand for high-performance products is on rise, which yields higher prices and margins. The transformation of Data-center market is beneficial for the company as the company's products are well known for their better performance. The results also reflect the positive effect of the launch of products during 2013.

As mentioned by the company:

"From 2013, we extended our leadership at the high end of the data center with the launch of the Ivy Bridge-based Xeon product line. And at the low end of the data center, we extended our leadership with the launch of Avoton targeting the micro-server market."

Other Intel Architecture segment generated $1.1 billion of revenue in the last quarter, up 8.5% from the last year. Segment loss increased from $495 million to $620 million.


For the last one year, the company is focusing significantly on the segment particularly tablet products. The results do not reflect the effect of such efforts as the company has yet to attain a scale, and some products are still in pipeline. The future of the segment is increasingly looking promising due to the certain products introduced by the company during recent times like Bay Trail, Edison, and certain acquired products. The R&D spending is high due to rapid product development and no decline is expected in near term.

Software and Services segment generated $683 million of revenue, up 7% from the same period last year. The segment reported a turnaround with $38 million of operating income from a loss of $36 million during the same period last year.


The segment reported a turnaround, and is all set to report improved profitability in the future. The segment will be benefited from the company's increased architecture based offerings which are offered with inbuilt security software products.

FY 2014 Guidance: (as mentioned by the company)

Full-Year 2014

•Revenue: approximately flat.

•Gross margin percentage: 60 percent, plus or minus a few percentage points.

•R&D plus MG&A spending: approximately $18.6 billion.

•Amortization of acquisition-related intangibles: approximately $300 million.

•Depreciation: approximately $7.4 billion.

•Tax rate: approximately 27 percent.

•Full-year capital spending: $11.0 billion, plus or minus $500 million.

The guidance reflects that the company will spend one more year to set a foundation for the future growth opportunities, and will carry-on with its R&D and capital spending to manufacture the products based on latest technologies.


The company delivers a very strong quarter. The company is by far the largest player in the PC microprocessors and data center market and is much ahead of its rivals. The decline in the PC market and company's little presence in the mobile market are two key worries for the company in the last few quarters. Recent results of PC Client segment reflects that worries related to PC markets are fading.

Most of the markets in which the company operates are increasingly becoming more and more dynamic. To address the situation, the company has been "bringing innovation to the market more quickly across a wide range of computing platforms". This approach will allow the company to stay ahead of its competitors (by offering more advanced products), but may effects the margins negatively, particularly in the segments where the company has yet to build-up a significant scale.

The company spends FY 2013 to build a foundation for the future growth markets and to solidify its presence in PC and Data-center markets. In FY 2014 also, the company is likely to carry-on with its efforts. However, the positive effect of such efforts may not reflect in the company's results in near future due to higher start-up cost and lack of significant scale in the related product segments.

Another thing that can prove a key development for the company's future is the introduction of Broadwell (processor microarchitecture for 14-nanometer process technology).

As mentioned by the company:

"Yields improved significant in Q4 putting it (14-nanometer process technology) squarely on track with the Broadwell production later this quarter."


The company is trading at PEx of 13.7, and offers a dividend yield of over 3.5%.

Despite the fact that the share price of the company has seen a decent run-up in the last 12 months (see the chart below), the valuations look reasonable due to the dividend yield and long-term fundamentals of the company.

INTC Chart

INTC data by YCharts

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.