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Chip behemoth Intel (INTC Free Intel Stock Report) reported somewhat mixed results for the December quarter of 2012. Revenues came in at nearly $13.5 billion, which was roughly on par with our initial estimate, while share net was a few pennies ahead of our expectation, at $0.48. On a positive note, Data Center Group sales were up 7% sequentially, and 4% relative to the comparable period last year. Furthermore, the gross margin came in at 58%, which were about 100 basis points above the midpoint of management's expectation. On the other hand, PC Client Group revenue slipped a bit sequentially, and was down mid-single-digits, year over year. What's more, the Other Intel Architecture group's sales fell 14% sequentially, and 7% from the prior year. For the full-year 2012, Intel had revenues of $53.3 billion and earnings per share of $2.13.

However, the company will likely continue to be constrained by a subdued domestic economic recovery and sluggishness on the international front. As such, management looks for revenues to climb only in the low single digits on a year-over-year basis in 2013. The gross margin is likely to be in the neighborhood of 60%, a couple percentage points below last year. Although we look for strong demand for high-end products and increased average selling prices across many lines, loftier spending will likely cut into profits this year. Management continues to invest heavily in fabs and research & development, which will likely cut into free cash flow. This is the case, despite the sluggish top-line growth prospects.

Looking at the seasonally slow first quarter of this year, Intel gave revenue guidance of $12.7 billion, plus or minus $500 million, while the gross margin will probably be 58%, give or take a couple of percentage points. Results at the Other Intel Architecture group should improve on a year-over-year basis in 2013, as Netbooks and basebands have easier comparisons. 

As a result of the recent news, we have boosted our top-and bottom-line estimates for the year just begun. We now look for revenues of $55 billion, which represents an increase of approximately 3% over last year. What's more, share earnings are likely to be $2.15, or roughly flat with 2012. Our prior expectations were for a top line of about $54.4 billion and earnings of $2.00 per share.

Intel shares fell more than 6% in price after the announcement of fourth-quarter results. We think that these shares might well face increased volatility in the short run, owing to the aforementioned global economic concerns and increased competition from mobile-based products. Also, the departure of CEO Paul Otellini in May adds another degree of uncertainty.

This stock continues to be a good selection for long-term total return potential in our view, however. It pays a solid dividend relative to other technology companies and appreciation potential for the 3 to 5 years ahead is alluring at the recent valuation. Though the company's bottom line may be constrained short term by increased spending, we view this as a favorable initiative. Indeed, much of the increased expenditures are due to the initial ramp of 450 millimeter wafer facilities, which is expected to launch at full volume in the 2015-2017 time frame. Hence, this endeavor will likely result in reduced expenses down the road. Furthermore, we believe Intel's immense size and stellar balance sheet give it the wherewithal to increase its presence in higher-growth segments of the chip industry (e.g. mobile applications), through both external and organic means.

About The CompanyIntel 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.