This company prefers to make its own computer chips instead of outsourcing its designs to other manufacturers. That should appeal to computer chip buyers worried about an over-reliance on Taiwan’s chipmakers.
Even though the pandemic spurred strong demand for personal computers, the firm continues to diversify into new growth areas such as chips for self-driving cars, cloud computing and artificial intelligence.
The stock trades at just 10.3 times the company’s 2021 earnings forecast.
INTEL CORP. (Nasdaq symbol INTC; www.intel.com) is the world’s leading maker of computer chips: its products power 90% of all personal computers and more than 80% of all datacentres.
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To cut its reliance on chips for personal computers, Intel is using acquisitions to expand its expertise in other areas.
In May 2020, Intel acquired Moovit Inc. The Israel-based firm makes a mobile app that provides public transit users and motorists with maps and other information to help them plan their routes. The app now has over 800 million users covering 3,100 cities in roughly 100 countries. Moovit’s technology will enhance the impact of Mobileye.
Intel paid $900 million for Moovit, or $840 million if you factor in the value of its earlier investment in this tech company.
At the same time, Intel continues to sell what it sees as its less-promising businesses. Those include a new deal to sell its struggling flash memory chip operations to South Korea’s SK Hynix Inc. Manufacturers of mobile phones, digital cameras and other devices use flash chips to retain information without power.
Intel will receive an initial payment of $7 billion in late 2021, assuming it can secure the necessary government approvals for the sale. When the sale does close—probably in 2025—it will receive an additional $2 billion.
Thanks partly to its recent acquisitions, Intel’s revenue rose 31.1% over the past five years, from $59.39 billion in 2016 to $71.97 billion in 2020. Overall earnings climbed 71.1%, from $13.15 billion to $22.50 billion. Due to fewer shares outstanding, earnings per share jumped 95.2%, from $2.72 to $5.31.
In the quarter ended June 26, 2021, the company’s overall revenue slipped 0.5%, to $19.61 billion from $19.73 billion a year earlier. That’s mainly due to a 9.3% drop in revenue from processors for datacentres as increased competition hurt selling prices. That revenue slip offset gains in revenue from PC chips (up 6.5%) and chips for the Internet of Things (up 60.7%).
Earnings before one-time items improved 6.4% in the quarter, to $5.21 billion from $4.90 billion. Per-share earnings rose at a faster rate of 12.3%, to $1.28 from $1.14, on fewer shares outstanding.
On June 26, 2021, Intel had a huge cash balance (including short-term investments) of $13.4 billion; its long-term debt of $31.7 billion is a moderate 16% of its market cap.
Under the company’s new strategy, it will build two new chipmaking facilities in Arizona at a cost of $20 billion. The new plants should begin operating in 2023. The company will also spend $3.5 billion to expand capacity at an existing facility in New Mexico.
Intel also wants to build two new manufacturing plants in Europe. They will help the company meet rising demand for chips in non-computer products such as automobiles. The new plants would take 10 years to complete and cost around $95 billion.
As well, due to the current shortage, Intel now plans to expand production of chips for automobiles at its facility in Ireland. The company expects the global market for car chips will double by 2031.
Along with the investment in plants, Intel wants to improve its manufacturing processes after several problems forced it to delay the launch of new chips in 2020.
That includes new investments in research. In the latest quarter, research spending rose 10.8%, to $3.72 billion (18.9% of revenue) from $3.35 billion (17.0%) a year earlier.
Intel’s strong free cash flow (regular cash flow less capital spending) totalled $6.72 billion in the first half of 2021. That will help offset these higher costs.
The strong cash flow also supports your dividend. The company has paid dividends continuously since 1992 and raised that quarterly payment by 5.3% in March 2021. The new annual rate of $1.39 a share yields 2.8%. Moreover, Intel spent $2.4 billion on share buybacks in the first half of 2021, and still has $7.2 billion remaining under its current buyback authorization.
Intel will probably earn $4.79 a share in 2021, and the stock trades at 10.3 times that forecast. That’s a low p/e in light of the company’s high research costs and the rising need for chips to power devices beyond computers.
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