Intel is Ready To Move Higher

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

The PC market recorded a 3.2% decline in 2012. Furthermore, future growth prospects are grim for the industry. Industry experts are predicting that the market will grow only 2.8% during 2013. Intel (NASDAQ: INTC) suffered due to its heavy exposure to the PC market. The company has faced declining revenues over the past twelve months. Trailing twelve months revenues stand at $53.7 billion, down 0.4% from $53.9 billion reported at the end of 2011.

Intel is also trying to capture a share of the smartphone market, which is completely dominated by Qualcomm  (NASDAQ: QCOM). Despite a decline in global PC sales, the company has been able to protect its revenues. I believe there are opportunities for Intel to grow in 2013. Let's look at the prospects of the company.

Dividend Profile

Intel has an attractive dividend yield of 4.09%; this represents a healthy return, as not many companies show such good yields in the industry. At the moment, the company pays an annual dividend of $0.90 per share. Intel has extremely impressive cash flows. Trailing twelve months operating cash flows for the company stand at $19.4 billion. Furthermore, Intel generated $8.1 billion in free cash flows over the past twelve months. At the same time, cash dividends for the company stood at $4.3 billion. The payout ratio for Intel based on free cash flows stands at 53%. As a result of the low payout ratio, there is room available for the company to increase dividends in the future.

Future of the PC Market

The PC industry is expected to grow, albeit at a low rate. Most industry experts believe that Windows 8 did not get enough time to have an impact on the market. Usually the launch of new operating systems spurs PC sales. However, Windows 8 failed to augment sales and the market saw a decline in sales for the first time in five years during the holiday quarter. If the market shows signs of growth in 2013, and Windows 8 attracts more customers, Intel will surely benefit from increased demand.

Making Inroads in the Mobile Market

The mobile market is one of the most lucrative segments of the technology industry. At the moment, the smartphone chip market is dominated by Qualcomm. However, Intel is trying hard to get a piece of this market. At the recent Consumer Electronics Show (CES), Intel was a dominant player and had significant influence. The VP of mobile, Mike Bell, talked at length about the company's line of mobile processors. Mainly the company was focusing on Nvidia's Tegra 3 mobile processor. Furthermore, the company is also tailoring its Atom processors according to the needs of the emerging markets.

Atom Z2420 CPU with XMM 6265 is a dual-core, 1.2GHz chip designed for smartphones in emerging markets. The company also showed a reference design phone with a 3.5-inch screen. Safaricom, Acer, and Lava will be building phones based on the Atom Z2420. Furthermore, Intel will launch an Atom processor in the future that will offer twice the performance of its current processors and should have a much needed update to the graphics core.

The main competitors for Intel are Advanced Micro Devices (NYSE: AMD), Qualcomm, and ARM Holdings (NASDAQ: ARMH). AMD is currently suffering due to the weak economic environment. The company missed its earnings estimates and the future outlook is also gloomy. AMD expects weaker demand from the consumer side. ARM is also expected to underperform and most of the analysts have chopped their price targets. However, ARM is expected to beat earnings estimates for the fourth quarter. Other than the earnings beat, there is no short-term driver for the company. As a result, the stock may decline a little. ARM lost almost 20% in the first half of 2012; however, the stock recovered and finished the year 16% above the European Index. Intel is trading at a P/E ratio of 9.6 at the moment. Furthermore, the company has three year average EPS growth rate of 37.5%. AMD is in the worst position compared to other manufacturers, and it has negative margins and poor EPS growth. Overall, margins are strong in the industry, and all of the companies except for AMD have impressive margins.

Summary

I believe Intel will grow in 2013. There are a lot of opportunities for Intel in the mobile market. Furthermore, the PC market is also expected to show some growth over the next twelve months. Intel is trading at attractive multiples at present, and there is substantial upside potential. In addition, the dividend yield of the company is one of the best in the industry. Intel provides income along with considerable growth opportunity. I expect Intel to do well in 2013, and it should prove to be a solid investment over the next twelve months.


IshtiaqAhmed has no position in any stocks mentioned. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel and Qualcomm. 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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