Intel's Leadership, New Microprocessor Will Propel Stock Higher

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

Investors and analysts are closely watching the activities of companies in the technology industry. Tech giants like Apple (NASDAQ: AAPL), Google (NASDAQ: GOOG) and Microsoft (NASDAQ: MSFT) have been the center of daily Wall Street conversations driven by high expectations. The strong competition to develop highly innovative products between the companies also creates high enthusiasm among consumers and investors. The three companies are also competing to gain larger markets shares in the mobile device market. Each company dominates a specific business segment in the technology industry. Apple has the largest tablet market share (61.4%), Google dominates the search engine market share (66.2%) while Microsoft has the largest control over the operating systems market share (84.11%).

Market Position 

Investors are also closely monitoring Intel (NASDAQ: INTC) to determine if it is good for long-term investment.  I believe Intel is an excellent investment. For the past ten years, Intel remains the world leader in the semiconductor industry. In 2011, the company‘s microchip revenue was $48.7 billion with 15.6 % market share. Its revenue was up by 26.6 % compared from the previous year. Its competitors are behind in terms of microchip revenue and market share. Samsung had $28 billion revenue and 9.2% market share; Texas Instruments with $14 billion revenue and 4.5% market share; Qualcomm with $11 billion revenue and 3.3% market share; STMicroelectronics with $10 billion revenue and 3.1% market share and Micron Technology with $7 billion revenue and 2.4% market share, respectively.

Intel holds the largest market share in the microprocessor business. The company dominates the desktop PC processor, mobile processor and server/workstation processor segments with 76.1%, 82.3% and 94.3% market shares respectively. Advanced Micro Devices , Intel’s strongest microprocessor business competitor is far behind with only 23.8%, 17.6% and 5.7% market shares in desktop PC processor, mobile processor and server/workstation processor segments respectively.

At present, Intel’s market value is more than $137 billion. The company’s total assets are more than $71 billion and its cash on hand is around $15 billion. Its total liabilities are $25 billion. For the past 10 years, Intel recorded a consistent increase in revenue from more than $26 billion in 2002 to $54 billion in 2011. The company’s average net profit margin is more than 18% during the 10-years period. Based on these figures, Intel is financially healthy. 

Stock Analysis

Intel’s stock price is currently trading at around $28 per share. The company has less than $3 EPS and the P/E ratio is 11. Based on the 52-week range, Intel’s stock price increased from $19 to more than $28.  Although several analysts are less enthusiastic and still weighing the over-all performance of the market, they believe that Intel has more room to grow. In fact, Warren Buffet added Intel in his portfolio and the stock value is worth more than $200 million based on Berkshire Hathaway’s 13-F third quarter filing. This is a good sign that Intel stock will increase over the years. RBC Capital Markets analyst Doug Freedman estimated that Intel will generate $13.5 billion revenue and the company’s target stock price is $32 per share on the 2nd quarter this year. According to Freedman, the new 22-nanometer Ivy Bridge  microprocessor with 3D transistors is the main driving force for the company’s revenue increase. The Ivy Bridge is smaller, more powerful and more energy efficient compared to the Sandy Bridge microprocessor available in the market today.

Looking Ahead

Next generation notebooks and ultrabooks integrated with the Ivy Bridge microprocessor will be out in the market by June this year. The release schedule is perfect for the back-to-school shopping season. College students and professionals who need to upgrade their computing experience with advance features, better performance and a longer battery life will definitely buy the Ivy Bridge integrated ultrabooks.

I am positive that Intel will generate income from both Ivy Bridge and Sandy Bridge microprocessors. I expect that the prices of ultrabooks currently integrated with the Sandy Bridge will go down once the Ivy Bridge ultrabooks are out in the market. According to a report, the price for current Intel ultrabooks will drop from $800 to $699. It would be more affordable for consumers with lower budgets and ideal for high school students. The price cut is part of Intel’s strategy to increase the popularity of Ivy Bridge ultrabooks in addition to an intensified internet and television marketing campaign.

For the past ten years, Intel’s gross margin is upward from 49.76% in 2002 to 84.54% in 2011. Take note that in 2011, the company reported $54 billion in revenue and its gross profit was almost $47 billion. Intel’s 2011 gross margin was outstanding. These figures show that the company has a strong pricing power to maintain its profitability.

In 2011, Intel Capital, the global investment and M&A arm of the company reported a $40 million investment in Asia. Intel acquired ten companies that offer different innovative technologies from semiconductor design and manufacturing, green technology, software, social gaming and cloud-based services. Intel’s investment was strategic for the company to expand its business and to dominate the Asian market particularly in China, which is the world’s largest PC market today. The International Data Corporation (IDC) estimated that PC shipments to China would be around 85.1 million units- higher than the 76.6 million units estimated pc shipments for the United States.

Intel has an excellent management. For the past ten years, the company’s leadership consistently delivered profits for the company even during economic crisis. Despite the global financial crisis in 2008, Intel’s free cash flow was more than $5 billion. In 2011, the company’s free cash flow increased to more than $10 billion. The figures indicate that Intel has an excellent free cash flow generation. In terms of dividend distribution, Intel is also consistent. At present, the company is paying an excellent dividend yield of 3%.

Conclusion

I believe that Intel’s leadership is capable of maintaining its solid business performance over the next decade. The company will maintain its dominance in the semiconductor industry. I predict its growth rate will be around 10% per year, and shareholders will continue to receive good dividend yields, perhaps more than 3% within the coming years. Overall, Intel is a high performing company and I am confident that Intel stock is an excellent long-term investment.


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