Intel…Are Shares Attractive At Current Levels?

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On April 19, 1965, Gordon Moore (co-founder of Intel) wrote an article that would help shape an industry (the world for that matter). Technology companies across the global deal with the basis of this article every day. The concept from that article would come to be known as Moore’s Law, which states, “the number of transistors in a dense integrated circuit doubles approximately every two years.” That makes it an incredibly competitive environment, even if you’re the one constantly innovating. It’s important to note that Moore himself saw an endgame to the rate of chip progress. In 2015, he thought it would eventually reach a saturation point. He said, “I see Moore’s law dying here in the next decade or so.”

Today, Intel is a leading manufacturer of integrated circuits serving personal computers, communications, industrial automation, military, and other technologies. The company has four main business segments: Client Computing (62%), Data Center (26%), Internet of Things (4%), and Software and Services (4%).

INTC business segments



INTC reporting segments


Third quarter results were better than the midline outlook from the company with gross margins holding steady above 62%. Year-over-year revenue was unchanged, with growth in the data center, Internet of things and memory segments helping to offset the drop in the client computing segment. For the upcoming quarter, management says they expect revenue to come in around $14.8 billion and gross margins to stay around 62%.

In the most recent quarter, Brian Krzanich (Intel CEO), states, “We executed well in the third quarter and delivered solid results in a challenging economic environment. The quarter demonstrates Intel innovation in action. Customers are excited about our new 6th Gen Intel Core processor, and we introduced our breakthrough 3D XPoint™ technology, the industry’s first new memory category in more than two decades.”

M&A is likely to be a key factor for continued growth. The recent acquisition of Altera for $16.7 billion, or $54 per share in cash, is a prime example of this. The deal with Altera seems great on the surface and should help diversify their operations away from the microprocessor business (which may be maturing). The previous purchases of software businesses Wind River for ~$1 billion in 2009 and McAfee for ~8 billion in 2011 should allow the company to bundle software and hardware security in the future. So, are shares attractive at current levels?

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