Can Intel Continue Growing?

Intel (INTC) reported its fourth quarter and full year 2015 results on 14th Jan. It reported a Y-o-Y increase of 1 % in quarterly revenue to $ 14.9 billion. The operating income was $ 4.3 billion, net income was $ 3.6 billion and the EPS was flat at $ 0.74. For the full year 2015, Intel reported a 1 % decrease in revenue to $ 55.4 billion while its operating income was $ 14.0 billion, net income was $ 11.4 billion and the EPS was up 1 % to $ 2.33.

The company’s gross margin was down 1.1 percentage points both for the fourth quarter as well as the year.
Net income for the quarter was down from $ 3.7 billion to $ 3.6 billion and down from $ 11.7 billion to $ 11.4 billion for the year. The company spent 4 % more on R&D and marketing in the quarter while 2 % more during the year than the previous year.

Intel generated operating cash flow of approximately $ 5.4 billion in during the three month period while the operating cash flow for the full year was approximately $ 19.0 billion. There is $ 25.31 billion of total cash balance on the Intel balance sheet, up $ 11 billion from the end of 2014. The total debt is $ 22.67 billion. But net cash balance, total cash less debt, and inclusive of our other longer-term investments was approximately $ 6.6 billion. That’s what an investment grade balance sheet looks like.

Segment-wise performance:

Going by segment, the Client Computing Group’s revenue was $ 8.8 billion, up 3 % sequentially and down 1 % year-over-year due to lower platform volumes and selling prices compared to last year. Platform volumes down 16 % and platform average selling prices were up 17 %. As of November, 14-nanometer products made up more than 50 % of the group volume. The high-end Core i7 microprocessors and our K SKUs for gaming, both set all-time full year volume records, leading to a rich product mix.

Data Centre Group’s revenue was $ 4.3 billion, up 4 % sequentially and up 5 % year-over-year with platform volumes up 7 % and platform average selling prices down 1 %. Macro weakness weighed on enterprise demand and resulted in slower growth than we expected at the beginning of the year.

Internet of Things Group’s revenue was $ 625 million, up 8 % sequentially and up 6 % year-over-year. For the year, an all-time record growth in the retail transportation and video segments boosted the group revenue by 7 % to $ 2.3 billion.

Software and services operating segments had revenue of $ 543 million, down 2 % sequentially and down 3 % year-over-year. Non-Volatile Memory Solution Group revenue was flat sequentially and up 10 % year-over-year.

Intel Security Group was flat on a GAAP basis and up 6 % on a constant currency basis. Due to the shift of focus on endpoint technology, the group drove higher material efficiencies and achieved a 44 % improvement in operating income.

The CEO, Brian Krzanich, accepted that there was a significant decline in PC demand through the year. However, he sounded assured that Intel’s results for the fourth quarter were consistent with expectations, marking a strong finish to the year. He said, “Taken as a whole, 2015 demonstrated the benefits of our strategy ….. That strategy is also resulting in the evolution of our business model to focus on three keys areas of growth, the Data Centre, the Internet of Things and Memory. Our results reflect that evolution.”

Innovation:

Intel shareholders perceive tremendous value in the innovation and differentiation that the company drives in its core PC business. This business provides a foundation of IP and a source of cash flows. Intel introduced a revolutionary new class of memory call 3D XPoint, the industry's first new memory technology in more than two decades. The NAND solutions group grew more than 20 % to another all-time record of $ 2.6 billion. Later this year, the company will start producing the upgraded Dalian, China fab and will manufacture both 3D NAND and 3D XPoint versions.

Outlook:

Intel provided a soft outlook for the first quarter as a sign of caution on the level of economic growth, particularly in China. The mid-point of the revenue range is expected to be $ 14.1 billion with a gross margin of around 62 % including the effect of an extra work week and the recently completed acquisition of Altera Corporation ("Altera"), a leading provider of field-programmable gate array (FPGA) technology. For the full year, the revenue growth is expected to be in the mid-to-high single digits relative to 2015 with a gross margin of 63 %.

Conclusion:

Intel hasn’t pleased many with its year end result which is evident from that $ 3 drop just after the announcement. However, the company has put its money on certain new markets like the low-end phones and FPGA which could make things happen for them in 2016. The prospects of Intel in the next 2-3 years are looking quite bright. So any dip must be seen as a buying opportunity from here on.
Published on Jan 26, 2016
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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