The world’s biggest computer chipmaker continues to adapt to changing industry conditions and overcome adversity.
The key initiative has been to diversify its product line by reducing its reliance on traditional chips, largely through acquisitions. It has also had to overcome several setbacks, most recently the dismissal of its CEO. However, the company’s earnings continue to rise and it raised its dividend earlier this year.
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INTEL CORP. (Nasdaq symbol INTC; www.intel.com)is the world’s leading maker of computer chips: its products power 80% of all personal computers.
The company has removed Brian Krzanich, who served as both its chief executive officer and a member of the board of directors. That’s because a consensual relationship he had with an Intel employee violated the company’s non-fraternization policy. Intel’s chief financial officer, Robert Swan, will take over as the interim CEO.
While the search for a permanent CEO adds uncertainty, the company will continue to diversify its products and cut its reliance on personal computers. Those new products include chips that run datacentres and self-driving cars.
Intel also announced preliminary results for the second quarter of 2018. It expects to earn $0.99 a share, which is better than the consensus estimate of $0.86. As well, its projected revenue of $16.9 billion exceeds the consensus forecast of $15.6 billion.
Based in Israel, Mobileye specializes in computer systems and chips for self-driving cars. Partly as a result of this purchase, Intel now gets 49% of its revenue from data-centric businesses, providing chips that power datacentres and the Internet of Things.
To cut its reliance on cyclical demand for personal computers, Intel has diversified into other types of chips. As part of that plan, it purchased Mobileye N.V. in 2017 for $15.3 billion.
Value Stocks: Powering datacentres and the Internet of Things now half of Intel’s business
The Mobileye deal followed an earlier acquisition that also diversified the company’s products and services. In late 2015, Intel paid $16.7 billion for Altera Corp., a maker of chips called field programmable gate arrays (FPGAs). Users can program them to perform specific tasks, which makes server computers faster. Intel predicts FPGA chips will run 30% of the world’s datacentre servers by 2020 as more businesses shift to cloud computing.
At the beginning of 2018, Intel’s shares fell after the discovery of a design flaw in its computer chips that could make it easier for online intruders to access sensitive data, including passwords. Software patches help fix those types of flaws. However, they can also slow the performance of computer chips by up to 30%.
Subsequently, Intel has released updated chips on to the market at an accelerated pace. While this raises the company’s costs, it also lessens the risk of reduced customer trust.
Intel now expects to earn $3.85 a share for all of 2018. The stock trades at 13.5 times that forecast. That’s a particularly attractive multiple, as the company spends a high 21% of its revenue on research. Those expenses lower its current earnings and inflate its p/e.
With the March 2018 payment, Intel increased its quarterly dividend by 10.1%. Shareholders now receive $0.30 a share, up from $0.2725. The new annual rate of $1.20 yields 2.4%. The company’s dividend has grown an average of 5.9% annually over the last 5 years.
Recommendation in Wall Street Stock Forecaster: Intel remains a buy.
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