Is Buying Intel a Good Idea?

Intel (INTC) announced fourth quarter ended December 31, 2015 total revenue of $14.9 billion, up 3 percent sequentially from $14.5 billion in third quarter of 2015 and an increase of 1 percent year-over-year from $14.7 billion in fourth quarter of 2014. Going forward, Intel estimates first quarter of 2016 revenue of $14.1 billion, plus or minus $500 million.

Intel declared fourth quarter of 2015 net income of $3.6 billion or $0.74 per share, flat year-over-year compared to $3.7 billion or $0.74 per share during the same period last year and an increase of 16 percent sequentially from net income of $3.1 billion or $0.64 per share in third quarter of 2015.

The technology major reported continued growth in both its top and bottom lines primarily due to significant customer traction for Internet of Things Group (IOTG), non-volatile memory solutions, Data Center group, Client Computing group, software and other major operating segments.

Growing in the right areas     

Intel registered record revenue for its Internet of Things business segment during the quarter with revenue for this business segment having grown year-over-year notably with continued operating margin expansion.

The chip maker is continuously lowering the revenue contribution from client computing business segment while enhancing revenue streams from SSG, memory, IOTG and DCG segments.
Consolidated revenue from each of the above segments comprised of 40% of total company revenue and reporting nearly 65% of net operating margins.

The continued top line contribution from Internet of Things Group (IOTG), SSG, DCG and memory segments of Intel signifies robust company strategy to diversify its cash flows while continuously growing key margins from core products that are witnessing huge customer demand.

Till November 2015, over 50 percent of the total volume for Client Computing Group segment employed 14nm products with rising demand and traction for 6th Generation Intel® Core™ ("Skylake") processors.

Intel strategically completed the planned acquisition of Altera in the beginning of fiscal year 2016 that widened the company’s product portfolio. The key acquisition aligns well with Intel’s advanced product portfolio, allowing innovative classes of products in the expanding Internet of Things (IoT) and data center market segments.

The accelerated acceptance of Intel  Core processors by several key enterprise customers is believed to drive sustainable long-term company growth which is further strengthened by the growing product portfolio of Intel as it uniquely closes a major acquisition deal.

During the fourth quarter of 2015, Intel generated nearly $5.4 billion in of operating cash flows, paid $1.1 billion of dividends, and leveraged $525 million to buy back 17 million shares of its common stock with dividends paid for the complete fiscal year 2015 of approximately $4.6 billion, delivering nearly $19.0 billion of operating cash flows and utilized $3.0 billion to buy back 96 million shares of its common stock for the entire year which is in line with Intel’s continued commitment to deliver improved shareholder returns.

The way ahead

Stacy Smith, a key technology behemoth forecasts PC market sales to remain flat next year compared to this year. However, Intel is logically minimizing its core capital expenditures in the mobile segment to surpass its objective of minimizing losses by about $800 million and in line with its continued commitment to deliver improved shareholder returns.

Intel is keenly focused on controlling the major capital expenditures amid tough global commodity demand and pricing environment with weaker PC demand while sustaining strong free cash flows to be used in repurchasing its common stock and delivering outstanding shareholder returns.

The consensus estimate among 49 polled investment analysts evaluating Intel Corporation suggests that the company would outperform the market. This consensus estimate is maintained since the investment analyst’s sentiments got better on Aug 31, 2015. The earlier consensus estimate suggested investors to hold their position in the company.


Overall, the investors are advised to “Buy” equity in Intel Corporation considering the company’s logical valuation with trailing P/E and forward P/E ratios of 12.70 and 11.12 respectively, compared to solid industry’s average P/E of 17.30. The PEG ratio of 1.47 indicates healthy company growth and comparable to the industry’s growth average of 0.83. The profit margin of 20.63% is extremely impressive. Further, the key growth initiatives of Intel are logically supported by its robust balance sheet with total cash and total debt positions of $25.31 billion and $22.67 billion respectively, encouraging the company to make future growth investments.
Published on Jan 22, 2016
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

Posted in ...