INTEL CORP. $34 (Nasdaq symbol INTC; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 4.7 billion; Market cap: $159.8 billion; Price-to-sales ratio: 2.9; Dividend yield: 3.1%; TSINetwork Rating: Above Average; www.intel.com) is the world’s leading chip maker. Its products power 80% of all personal computers.
In the three months ended September 26, 2015, Intel’s earnings fell 6.3%, to $3.1 billion from $3.3 billion a year earlier. The company repurchased $1.0 billion of its shares during the quarter, so per-share profits declined just 3.0%, to $0.64 from $0.66. Overall revenue slipped 0.6%, to $14.47 billion from $14.55 billion.
Revenue from chips for computers and mobile devices (59% of the total) fell 7.5%, partly because Intel is offering fewer subsidies to mobile-device makers.
However, sales of chips for server computers (29%) rose 11.9% on higher volumes and prices. Sales of other products, such as memory chips (4%), jumped 18.6%, while software sales (4%) fell 0.4%. Sales at the company’s new Internet of Things division (4%), which makes chips for products other than mobile devices and computers, gained 9.6%.
Intel spent $2.9 billion (or 20.2% of its revenue) on research, up 3.0% from $2.8 billion (or 19.5%) a year earlier.
The company expects to complete its $16.7-billion acquisition of Altera Corp. (Nasdaq symbol ALTR) in early 2016. Altera specializes in chips called field programmable gate arrays (FPGAs) that users can program to perform specific tasks. This helps make server computers faster.
Intel plans to blend Altera’s FPGA technology with its current designs on a single server chip. It feels this all-in-one system will be twice as fast as the current standard of using separate chips.
The company can easily afford Altera. As of September 26, 2015, it held cash and investments of $32.9 billion, or $6.95 a share. Its long-term debt of $21.1 billion is a low 13% of its market cap.
Strong demand for FPGA chips should increase Intel’s revenue by 5%, to $58.0 billion in 2016 from a projected $55.2 billion in 2015. They should also boost its earnings by around 5.4%, to $2.35 a share in 2016 from its likely 2015 profit of $2.23. The stock trades at a moderate 14.5 times the 2016 forecast.
The company also recently raised its quarterly dividend by 8.3%, to $0.26 a share from $0.24. The new annual rate of $1.04 yields 3.1%.
Intel is a buy.
