Intel Reports Record Year

| About: Intel Corporation (INTC)
This article is now exclusive for PRO subscribers.

After the bell on Thursday, chip giant Intel (NASDAQ:INTC) reported a record year in terms of revenues. The company posted decent revenue numbers in the fourth quarter, and they beat the midpoint of their lowered guidance when the company warned a few weeks ago. Shares were up about 1.3% after reporting numbers.

Here's how the numbers looked for the fourth quarter:

  • Revenues of $13.89 billion, beating midpoint of lowered guidance ($13.7 billion). Analysts called for $13.72 billion.
  • EPS of 64 cents (GAAP), beating analysts' call for $0.61.
  • Gross margins (non-GAAP) of 65.5% and GAAP of 64.5%. Both numbers met revised guidance from company.

For the full year:

  • Revenues of $54 billion (GAAP), beating analyst expectations of $53.84 billion.
  • EPS of $2.39, beating analyst expectations of $2.37.

For the first quarter of 2012, Intel provided revenue guidance of $12.8 billion, plus or minus $500 million. That is exactly where analysts had the company pegged, at $12.8 billion.

So how do the fourth quarter numbers look? Well, they are up in dollar terms, but financial performance was down slightly. Here's some key financials over the past few years, for the fourth quarter.

Q4 2008 2009 2010 2011
Revenues $8,226 $10,569 $11,457 $13,887
Gross Profit $4,369 $6,840 $7,406 $8,952
Operating Profit $1,539 $2,497 $4,023 $4,599
Net Income $234 $2,282 $3,180 $3,360
EPS $0.04 $0.40 $0.56 $0.64

While the numbers were up, so were the costs, which led to lower overall margins in this year's period.

Q4 Margins 2008 2009 2010 2011
Gross Margin 53.11% 64.72% 64.64% 64.46%
Operating Margin 18.71% 23.63% 35.11% 33.12%
Net Margin 2.84% 21.59% 27.76% 24.20%

The numbers are still much better than those of 2008 and 2009, but I think Intel would have liked to have done a little better. Now let's look at the full year numbers.

Full Year 2008 2009 2010 2011
Revenues $37,586 $35,127 $43,623 $53,999
Gross Profit $20,844 $19,561 $28,491 $33,757
Operating Profit $8,954 $5,711 $15,588 $17,477
Net Income $5,292 $4,369 $11,464 $12,942
EPS $0.92 $0.77 $2.01 $2.39

As with the Q4 numbers, Intel grew the dollar amounts, but increased costs led to lower margins in 2011.

Yearly Margins 2008 2009 2010 2011
Gross Margin 55.46% 55.69% 65.31% 62.51%
Operating Margin 23.82% 16.26% 35.73% 32.37%
Net Margin 14.08% 12.44% 26.28% 23.97%

So where does Intel go from here? Good question.

Intel is doing much better than Advanced Micro Devices (NASDAQ:AMD) right now, but it is facing some decent competition from ARM Holdings (NASDAQ:ARMH). Intel is doing much better than AMD in terms of margins, both in gross and operating. When looking at Arm, Intel trails in gross margins, but is doing a bit better in terms of operating margins.

Now, Intel is buying back plenty of stock, and has a decent dividend to offer, something that the other two lack. AMD does not offer a dividend, while ARM Holdings pays slightly less than half of 1%. Intel pays almost 3.5% currently. Intel paid out over $4 billion in dividends in 2011, but also bought back over $14 billion in stock, and that buyback will continue.

Intel is currently trading at 10.8 times 2012 earnings, while AMD trades at 10.4 times, and Arm Holdings is at 45.6 times. However, Arm has much better growth potential ahead of it, which is why it is so expensive. Intel is cheapest when looking at the price to expected growth ratio over the next five years.

So what's my overall view? Well, we knew weeks ago that the quarter wouldn't be great, but it was decent, and slightly better than we were expecting. Intel has a great dividend and is buying back plenty of stock, which makes it a great value play.

The question for Intel is are they late to the party in terms of chips for mobile units? They may be. The future of chips appears to be in the mobile segment and possible ultrabooks, and ARM seems to have the edge there. However, Intel is the giant in the room, and I think that they are set up to do well going forward. I liked the report, but with the stock trading near 52-week highs, I would wait for a pullback before entering. I like the name but you can get it cheaper.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.