Intel’s Cash Stockpile Could Ignite Investor Returns

By Chris Marasco - August 7, 2012 | Tickers: AMD, INTC, MSFT | 0 Comments

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Intel (NASDAQ: INTC), the world’s top manufacturer of computer chips, is in a strong position to boost its cash flow. 

The company sells chips that help to operate keyboard, mouse, monitor, and drive functions, and the company is also involved in the CD, DVD, and Blu-ray spaces – all areas that will grow as the globe increases in population, and as that population becomes more tech-savvy.

Intel is emerging in the mobile and GPS market as well, selling consumer and mobile products for both consumers and corporations.  While the consumer market is growing with rising smartphone use, Intel is growing its corporate sales as it provides security against virus threats, and as it protects corporate data.

Also, Intel provides flash memory products that are used in physical drives and portable storage devices, such as those used by Western Digital and Toshiba.  Why is this important?

Because companies like Amazon and Google are growing their data by enormous amounts – daily.  These companies need physical data centers to hold all of their data, and Intel is in the mix for companies that will profit from this trend.

Further, Intel stands to profit from strong demand from countries like China and Brazil, which are seeing massive increases in computer usage.  When you match strong demand for computer chips with arguably the world’s best chip maker, profits are quick to follow.

Intel does face competition from rival Advanced Micro Devices (NYSE: AMD), which is ahead of Intel in the mobile space.  AMD recently hired Jim Keller, Apple’s head of mobile processor efforts, to be its chief of the microprocessor division.

Market Growth

Intel’s third-generation core processors hit the market in April, and they are being used in Ultrabooks, thin notebooks that will compete with Apple’s Mac Book Air.  It is estimated that 30–40 million Ultrabooks will be sold in 2012.

Further, Intel will stand to rake in cash right alongside its customers. Take Microsoft (NASDAQ: MSFT), for example.  Microsoft’s slick new Windows 8 operating system is expected to give the brand a much-needed pick-me-up, especially in the tablet space. And how will Microsoft’s new computers be powered?  Mostly by Intel chips.

So we know that Intel has market growth on the horizon, which will add to its cash stockpile – which can be used for increased dividends or share buybacks.

Here is a breakdown of what Intel’s cash situation looks like right now.  Most important is Intel’s free cash flow – its cash flow from operations less its capital expenditures.  Intel has grown its cash flow from operations nearly 24% from 2010 to 2011, giving it much more flexibility to invest in assets. 

This year looks even stronger for Intel, as it will earn more cash in its coffers with which it can work (cash flow and earnings numbers are in millions).

Overall, I like Intel because it is in a strong position to further add to its stockpile of cash.  With its increasing war chest, the company can continue to invest in new product innovations, it can hike its dividend, or it can repurchase shares – all activities that add value to shareholders.

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