intel

Microsoft is planning to release its new Windows 7 operating system on October 22. This should spur computer sales and upgrades. That’s good news for leading chipmakers, such as Intel and Nvidia. Both are also profiting from the growing use of mobile devices to access the Internet. INTEL CORP. $20 (Nasdaq symbol INTC; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 5.6 billion; Market cap: $112 billion; Price-to-sales ratio: 3.3; WSSF Rating: Above Average) is the world’s leading computer-chip maker, with 80% of the market. The company is combining its operations into two main divisions. These will be organized by function instead of by product. The first, the Intel Architecture Group, will design chips for computers, cellphones and similar devices. The second, called the Technology and Manufacturing Group, will manage Intel’s manufacturing plants....

THE BOEING CO., $51.04, New York symbol BA, rose 11% this week after the company said that its new 787 Dreamliner passenger jet would make its first test flight by the end of this year. Last June, Boeing had to suspend test flights after it discovered structural weakness where the plane’s wings connect to its body. The company now believes that it has fixed this problem. Boeing is unable to sell the first three Dreamliners it built because it made so many modifications to them in the design and testing process. As a result, it will classify their construction costs as a research expense. This will lower its third-quarter earnings by $2.21 a share. To put this in context, Boeing earned $1.41 a share in the second quarter of 2009. However, the charge is an accounting adjustment and will not affect Boeing’s cash flow or cash balances....

INTEL CORP., $18.79, Nasdaq symbol INTC, jumped over 15% after it reported better-than-expected earnings. The chipmaker earned $1 billion, or $0.18 a share, in the three months ended June 27, 2009. That’s down 34.5% from $1.6 billion, or $0.28 a share, a year earlier. Still, it was far ahead of the $0.08 a share that analysts were expecting. The latest earnings exclude a $1.4-billion fine imposed by European competition regulators, which ruled in May that Intel illegally offered rebates to computer makers. In exchange for the rebates, these manufacturers would agree to buy most of their chips from Intel. The company plans to appeal the ruling....

THE BOEING CO., $41.88, New York symbol BA, fell 13% this week after it delayed the initial test flight of its new 787 Dreamliner plane for a fifth time. The company had hoped to perform the flight by the end of June. The delay was caused by the discovery of weakness where the wings connect to the plane’s body. Boeing’s management feels that the problem is small, but it has postponed test flights for now. This, in turn, will delay deliveries to customers; Boeing had planned to start delivering 787s in the first quarter of 2010. The recession has hurt global travel volumes, so many airlines would probably prefer to postpone buying new 787s anyway. But some will probably still demand millions of dollars in compensation....

NVIDIA CORP. $10 (Nasdaq symbol NVDA; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 546.2 million; Market cap: $5.5 billion; Price-to-sales ratio: 2.0; WSSF Rating: Average) designs 3D-capable chips for computers, video-game consoles and other devices. The company outsources most of its production to chipmakers in Asia. The recession has hurt new-computer sales. In turn, computer makers are ordering fewer graphics chips from Nvidia. Computer makers are also switching to cheaper chips, particularly those that work well with “netbook” computers. Netbooks are small, inexpensive laptop computers whose processors are less powerful than those of traditional laptops. Because of their lower prices and portability, they are currently selling faster than desktops and laptops....

Computer-chip stocks can put on huge growth spurts, but fall just as fast. This is because new technologies can quickly make today’s chips obsolete. To succeed over the long term, investors should focus on companies that are leaders in their markets and have large customer bases, such as these three. All have low debt and lots of cash to keep developing new products. These factors put them in a good position to quickly increase their earnings and market shares once the economy starts growing again. TEXAS INSTRUMENTS INC. $19 (New York symbol TXN; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.3 billion; Market cap: $24.7 billion; Price-to-sales ratio: 2.1; WSSF Rating: Average) makes chips for a wide variety of electronic devices, including cellphones, DVD players and digital cameras. It also makes handheld calculators. The company has over 80,000 customers, but cellphone maker Nokia Corp. (New York symbol NOK) accounted for 18% of its 2008 sales....

Cisco Systems Inc., $18.79, symbol CSCO on Nasdaq (Shares outstanding: 5.8 billion; Market cap: $109.6 billion), is a leading maker of products that link and manage computer networks. These include routers, local-area network (LAN) and asynchronous transfer mode (ATM) switches, dial-up access servers and software. Cisco’s IOS (Internet Operating System) software ties these products together, delivers network services (which interconnect and move information between networks) and enables programs to run on networks. Cisco gets about 46% of its revenue from overseas customers. In its third fiscal quarter, which ended April 25, 2009, Cisco’s revenue fell 16.6%, to $8.2 billion from $9.8 billion a year earlier. Excluding one-time items, its earnings fell 24.1%, to $1.8 billion, or $0.30 a share, from $2.3 billion, or $0.38. The company bought back 77 million shares during the quarter, at a cost of $1.2 billion. The recession continues to hurt demand for Cisco’s products. To cope, the company plans to lower its expenses by $1 billion during its current fiscal year, including laying off up to 2,000 workers (or 3% of its workforce)....

VERIZON COMMUNICATIONS INC., $29.61, New York symbol VZ, plans to merge parts of its local-phone operations in 14 states with those of Frontier Communications Corp. (New York symbol FTR). As a result, Verizon shareholders will get one Frontier share for roughly every 4.2 Verizon shares. The company will finalize the exact exchange ratio just prior to the merger. This is a tax-deferred distribution, so investors will only be liable for capital-gains taxes on their new Frontier shares when they sell them. Verizon shareholders will control 68% of the new company. Verizon itself will get $3.3 billion in cash and debt securities. It will probably use the cash to pay down its $55.7-billion long-term debt, which is equal to 66% of its market cap. The assets that Verizon will spin off mainly consist of 4.8 million land lines in rural areas. As of March 31, Verizon had 35.2 million land lines in 25 states. The deal, which will probably close sometime next year, will make Frontier the fifth-largest local phone service provider in the U.S., with 7.1 million lines in 27 states....

We still think high-quality mutual funds with a long-term focus will beat stock-market indexes over time. If funds invest as we advise — sticking with well-established companies and spreading their assets across the five main economic sectors — they will likely lose a lot less than the indexes during a significant market downturn. That’s because big market slides are particularly hard on the stocks that were the most popular during the preceding rise, and our approach avoids excessive investment in these companies. In contrast, index funds do tend to load up on the hottest, most popular stocks as they rise. That’s because these stocks make up a growing proportion of the index as they increase in value. The most recent example is Potash Corporation of Saskatchewan, which, propelled by soaring fertilizer prices, had the highest market capitalization on the Toronto exchange last June. The shares have since dropped 54%....

NASDAQ-100 TRUST SHARES $35.03 (Nasdaq Exchange symbol QQQQ; buy or sell through brokers), or “Qubes,” hold the stocks that represent the Nasdaq 100 Index, which is made up of the 100 largest, most heavily traded stocks on the Nasdaq exchange. The index contains firms from a number of major industries, including computer hardware and software, telecommunications, retail/wholesale trade and biotechnology. It does not contain financial companies. The shares’ expenses are about 0.20% of assets. The index’s 10 highest weighted stocks are: Apple, Microsoft, Qualcomm, Google, Cisco, Intel, Research in Motion, Gilead Sciences, Oracle and Teva Pharmceuticals....