Intel's Journey Continues

abhisht is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Intel (NASDAQ: INTC) designs and manufactures integrated digital technology platforms, which consists of a microprocessor and chipset. The company sells these platforms primarily to the computing and communications industries. The company’s platforms has wide range of applications, such as personal computers, data centers, tablets, smartphones, automobiles, automated factory systems and medical devices.

Intel’s Q3 2013 revenue was $13.5 billion, a growth of 1% from Q2 2013. It gross margin was $8.5 billion, which remained flat compared to Q2 2012. On the basis of its operating expenses, its adjusted operating profit is $4.1 billion. Intel’s reported adjusted net income is $3.1 billion, a decrease of 13.9% from Q3 2011.

Intel expects Q4 2013 revenue of $13.6 billion, a growth of 1% from Q3 2013. It expects its gross margin to be $7.75 billion on a GAAP basis and $7.88 on an adjusted basis. On the basis of its operating expenses, it expects adjusted operating profit of $5.87 billion. Intel has also decreased its expected capex spending, which stands at $11.3 billion, down by $300 million in comparison to Q3 2012. A decrease in revenue expectations of the company is based on the fact that the demand from the customers will fall due to the on-going global economic environment, consumer softness in the mature market, and a slowing enterprise market segment. All this will ultimately reduce the demand for Intel products, thereby reducing factory loadings, slowing down growth in the profitability.

Advanced Micro Devices (NYSE: AMD) is the second-largest global supplier of microprocessors after Intel, and also one of the largest suppliers of graphics processing units. AMD is the only significant rival to Intel in the CPU market for personal computers. Together, both Intel and AMD held 99.1% of the market, with Intel occupying about 80% and AMD occupying 19%, in FY 2011. In comparison to Intel, sales for AMD are minuscule and have a long way to go to making AMD a worthy rival of Intel.

Nvidia (NASDAQ: NVDA) is another competitor of Intel. Its total revenue for Q3 2012 stands at $1,204 million. Out of the company's total revenue, the GPU segment comprises of 62.3%. Licensing fees from Intel are one of the primary sources for Nvidia's GPU segment revenue. If Nvidia aggressively competes with Intel, it is always possible that Intel may dissolve the contract and may either start manufacturing the product on its own or purchase it through some other vendor. Also, Intel continues to pursue platform solutions and integrated CPUs, which means integrating a CPU and a GPU on the same chip or same package. This could also negatively impact Nvidia's business.

The recent economic slowdown has forced companies to reduce costs while maintaining their operational efficiency and quality. As such, I see this as an opportunity for Intel to weed out operational inefficiencies, instead of a weakness.

In Q3 2012 Intel witnessed a less than healthy increase in sales and  profitability. All this is the result of economic slowdown and consumer softness. I believe that the company will break down this trend in coming periods. Hence, the stock can be bought for the purpose of medium & long term investment.


akgupta88 has no positions in the stocks mentioned above. The Motley Fool owns shares of Intel. Motley Fool newsletter services recommend Intel and NVIDIA. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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