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Dow 30 Earnings: Intel Corp. - Fourth Quarter 2011
Chip behemoth Intel (INTC - Free Intel Stock Report) reported some fairly good news for the December quarter of 2011. Earnings per share came in at $0.64 on revenues of nearly $13.9 billion. These figures were well above the prior year, and our expectations for sales and earnings of $13.7 billion and $0.60 a share, respectively.
The company, as is the case with the chip industry in general, is highly dependent on the health of the macro economy. Domestic economic growth has been improving of late, which has helped demand on both the corporate and consumer side of the ledger. While conditions have been far from outstanding, they have been quite decent in most product segments. More specially, PC Client group sales increased 17% from the prior year, to $9 billion, while the Data Center division increased 8%, to $2.7 billion. What's more, the other Intel architecture segment posted a year-over-year gain of 35%. These divisions helped to offset a 57% drop in Intel Atom microprocessor and chipset revenue, to $167 million.
The news for the March period of 2012 is pretty good as well. Management gave top-line guidance of $12.8 billion (plus or minus $500 million) for the quarter, which is roughly what we had expected. Too, the gross margin is likely to be approximately 64% in the period, which is only slightly below the December quarter's figure of 64.5%. (Keep in mind that the fourth period is typically the company's seasonally strongest.)
As a result of the recent news, we have upped our revenue and earnings expectation for the current year from $55.3 billion and $2.40, to $55.5 billion and $2.50 a share, respectively. The industry leader should continue to benefit from a continued gradual recovery in the domestic economy, which might well lead to increased chip demand. Furthermore, the McAfee and Mobile Communications units, which accounted for about $1 billion in fourth-quarter 2011 revenue, will likely continue to constitute an increasing percentage of the top line.
Intel shares moved modestly higher following the earnings announcement, and in the process pushed ahead to a new 52-week high above $26 a share this morning. Management has generally done a pretty good job of providing revenue and earnings guidance, and thus, much of the good news is often baked into the share price by the time the company announces results.
Moreover, we still favor these shares for the long haul. Intel's immense size puts it in a solid competitive position for the pull to 2014-2016. Its geographic and product diversification is also a plus. Intel has historically been a leader in the personal computer market. However, it has recently boosted its exposure to mobile communications and Internet security, which not only adds to its profit-generating potential, but also helps to diversify its product portfolio. We look for further acquisitions in the years ahead, given the chipmaker's pristine balance sheet. Furthermore, the company's strong R&D pipeline, coupled with manufacturing efficiencies through die shrink and wafer size increases, should help boost the annual operating margin over the forthcoming 3 to 5 years.
About The Company:Intel Corporation is a leading manufacturer of integrated circuits. In addition to primarily supplying manufacturers of personal computers, the company serves a multitude of other global markets, including communications, industrial automation, military, and other electronic equipment. Intel’s product line consists of microprocessors, with the Pentium series being the most notable. It also manufactures microcontrollers and memory chips, and the company sells computer modules and boards, and network products.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.