Dow 30 component Intel (INTC - Free Intel Stock Report) is the world’s largest semiconductor chip maker, by revenue. The company dominates the Using the VL Page_Business Discmicroprocessor and chipset market for computers; its Pentium series of chips has been the industry standard for some years. A quick look at the Business Description shows all this, and that the company participates in other markets, including network products.

Intel’s PC Client segment, which includes its dominant personal computing business, comprised 72% of the company’s 2010 revenues. Its Other Intel Architecture unit, meanwhile, comprised just 4% of revenues that year, but this much smaller group includes Intel’s Embedded and Communications Group and its Digital Home Products Group. Indeed, this much smaller unit has been the intended home of two of Intel’s three most recent significant acquisitions, those of the WLS business of Infineon, which closed in the first quarter of 2011, and of Wind River Systems, which closed in 2009. Both purchases aimed to increase Intel’s penetration of the fast-growing mobile handset and related product markets.

Indeed, with the advent of Apple’s (AAPL) iPad, and the increasing interoperability of mobile phones and sub-PC computing devices, Intel’s dominance of the PC chip market may become a moot point as that market shrinks in comparison to the embedded device market. It is in this context that Texas Instrument’s (TXN) planned acquisition of National Semiconductor (NSM) appears to be a shot across Intel’s bow. Texas Instruments is already the leading player (with a 14% market share in 2010) in the $42 billion analog semiconductor market. Analog semiconductors translate real world stimuli—sound, temperature, pressure, visuals—into digital signals that can be used in computerized applications. They are also utilized for battery and power management purposes. Analog semiconductors are thus an important technology in the embedded device market. With the addition of National Semiconductor, a top tier analog semiconductor company, Texas Instruments fortifies its strength in this area.

Using the VL Page_Current Position BoxThe question for existing and potential stockholders of Intel is thus: can the chip behemoth compete and adapt? A quick look at the Current Position box, to the middle on the left of the Value Line page, shows that Intel is sitting on a massive hoard of almost $22 billion in cash assets. The company has accumulated this tremendous cash pile even while buying back considerable stock, amounting to about 307 million shares since 2007 (which can be seen by looking at the number of shares outstanding in the historical portion of the Statistical Array), and while funding research and development at 16% of sales (R&D spending in 2009 can be found in the Business Description). The company also managed to raise its annual dividend payout through the recession, with only aUsing the VL Page_Historical Array small delay in 2009.

Comparing Intel’s “cash flow” per share and capital spending per share figures (both found in the Statistical Array) can help to explain how the company has been able to build up this substantial cash reserve. Even in 2009, a weak year for earnings per share, “cash flow” per share supported more than a doubling of capital spending per share. Looking over to the estimated and projected portion of the array, this dynamic between “cash flow” and capital spending is likely to continue, according to Value Line analyst Alan G. House.

Using the VL Page_Capital StructureThis altogether suggests that Intel has the cash resources, and the future cash producing power, to accelerate acquisitions and R&D spending in order to compete with all comers in the analog semiconductor, mobile handset, embedded device, and sub-PC technology markets. The company’s modest debt burden (long-term debt comprises only 4% of capital, which can be seen in the Capital Structure box) also means that it can increase its leverage substantially to pay for growth.

In the Commentary Section, analyst Alan House notes that the global economic recovery will likely lift chipUsing the VL Page_Analyst Comment demand and projects healthy share-net growth out to 2014-2016. The 3- to 5-year earnings per share projection of $2.80 translates into an annual growth rate of 16.5% (which is shown in the Annual Rates box to the left of the page). Note that Value Line estimates and projections never include the effects of prospective or possible acquisitions. Thus, if Intel jumps into the analog semiconductor merger market in the wake of Texas Instruments’ big purchase of National Semiconductor, Intel’s projected revenues and earnings figures could increase considerably compared to current levels. Given the company’s need to compete in this important market and its obvious ability to do so, investors should be on watch for such a move in the coming years.

Using the VL Page_Timeliness Ranks BoxAll told, Intel is a solid technology company for most investors’ portfolios. Its Safety rank is 1; its Timeliness rank is 2; and its Price Stability is in the upper quartile (80). The first two measures can be found in the Ranks box at the top left of the page, and the last in the Ratings box on the bottom right. But, just as important, it has the financial wherewithal to growth into new markets to compete with competitors looking to challenge its dominance in the PC area.


At the time of this article’s writing, the author did not have positions in any of the companies mentioned.