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Stocks Analysis of Intel Corporation

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Intel Corporation is an American company that specializes in manufacturing semiconductor computer circuits and chips. It was founded in 1968 by Gordon Moore and Robert Noyce in an effort to make semiconductor memory more efficient and practical. For 25 years, it was the largest microprocessor manufacturer in the world until it was overtaken by Samsung in 2018. It invented the x86 series of semiconductor chips, which is found in most PCs today. It provides these microprocessors to businesses such as Apple, Dell, and HP. According to Forbes, in 2018, it was ranked the 16th largest American company and the 49th largest company in the world. Intel is traded on NASDAQ under the ticker INTC (Forbes).

On October 13, 1971, Intel became a public company. It issued 350,000 shares with a price of $23.50 per share, summing up to $8,225,000 (Deffree). Currently, Intel’s stock price is at $51.75; therefore, if investors were to buy the stocks during the IPO and hold onto them until today, they would see an increase of 220.21% (51.75/23.50).

The previous CEO, Brian Krzanich, resigned in June 2018 following a violation in Intel’s anti-fraternization policy. Following this sudden departure, Robert H. Swan served as interim CEO until, on January 31, 2019, Intel named him as its new CEO. The current chairman for the board of directors is Andy D. Bryant (Intel Newsroom). Although there is much debate on whether the CEO and chairman should be the same person, in a large company like Intel, a good governance usually requires the role of CEO and chairman to be split. The board of director is responsible for overseeing the company’s affairs and management. It ensures that the company is being run in conjunction with the mandate of the company and the will of the shareholders. If the CEO, who is responsible for driving these operations, were also the chairman, then they can abuse their position for their own benefit. A conflict of interest may arise if the roles are combined since the CEO would be voting for his or her own compensation. If the roles are separated, then the CEO can focus on managing the company and providing information to the Board, while the chairman, in his role as mentor and overseer, can advise the CEO on alternative courses of action, question flawed reasoning, and examine his analysis and decisions. Since Intel has an independent CEO and chairman, the board of directors is more likely to guide the company back on track and place corrective measures if the CEO were to drift away from the company’s mandate (Mohr). This ensures that the will of the stockholders in being upheld, making Intel a more trustworthy company than if the roles of CEO and chairman were shared.

At the beginning of the semester, on January 22, the stock price for Intel was $48.27. Currently, it is $51.75. Intel’s stock price over this semester was increasing for the most part and seemed to be doing relatively well, reaching a high of 58.82 on April 22. It rose 12% in February. However, on April 26, Intel stocks suffered its steepest drop in over three years, falling 9%; the stock price fell from 57.61 on the previous day to 52.43. This drastic decrease in price came after it released a weak full-year revenue guidance for 2019, disappointing investors. Although the first quarter reported earnings that were higher than expected, beating analyst estimates, its forecast for remainder of the year is below initial expectations. Intel expects a total sale of $69 billion for 2019, $2.05 billion below the estimate of $71.05 billion. This caused some investors to lose fate in the company, causing the market cap of Intel to decrease to around $235.8 billion, losing a value of $24 billion. This earning report was released a week after Intel confirmed it would not participate in the 5G smartphone market. After settling a legal dispute, Apple and Qualcomm made a deal, allowing Apple to use Qualcomm’s 5G semiconductor chips when it will eventually start manufacturing iPhones with 5G capabilities. Losing Apple’s business to Qualcomm discouraged Intel from pursuing competition within that market.

Intel has been the king of microprocessors, with almost all computers containing its chips. One of the main reasons for this dominance was that their processors were one generation ahead of their competitors. For many years, they did not have any significant competition. However, as Intel began having trouble with some of its processors, several semiconductor companies have caught up and began posing a significant threat. Nowadays, Intel operates in an industry that is characterized by stiff competition. Intel has six distinct operating segments, each with its own competitors (Investopedia). It competes with many other semiconductor manufacturers, most notably Samsung, AMD, Nvidia, Qualcomm, and IBM. Recently, less people are buying PCs and laptops and are, instead, opting for smartphones. When it comes to smartphone chip making, Samsung is clearly on top. Alongside its own brand, Samsung also produces chips for Apple, MacBook, and other gadgets, making it a top competitor Intel has to be aware of. In fact, Samsung overtook Intel as the largest microchip manufacturer in 2018. In the High-Performance Computing, CPU, and processor markets, Intel competes with AMD and Nvidia. America. AMD is Intel’s biggest competitor when it comes to the production of x86 microprocessors. As mentioned before, Intel tried to compete against Qualcomm in the 5G wireless market. However, after Qualcomm settled a deal with Apple on April 2019, Intel decided to pull out of this market, which disappointed investors.

Currently, the semiconductor market is suffering from a slowdown. The trade war between United States and China weakened many companies since China is a major supplier of microchip manufacturing products. Weak end demands and rising supplies play a key part in the decline. The semiconductor market fell 8.2% in the last quarter of 2018. Because of this, companies like Intel suffered after their first quarter report was released. However, according to experts, the market should improve throughout 2019 as new products are released and demand increases, which will help the global semiconductor market find its footing.

Intel pays a quarterly dividend, paid out in regular cash. As of 2019, Intel pays a dividend of 0.3150 per stock, amounting to $1.26 per share annually. This is a 5% increase from its previous year, when the dividend was 0.3000. Over the years, Intel has shown a trend of increasing payout of dividends; for example, in 2015, 2016, 2017, the quarterly dividends were 0.2400, 0.2600, and 0.2725, respectively (INTC). Recently, the dividends were paid out on January 24 and March 13. For over ten years, dividends were given out during January, March, July, and September. However, this year, the next dividend will be paid out on June 1st, after it begins trading ex-dividends on May 6th (INTC). Currently, with the stock price at $51.75, Intel has a forward dividend yield of 2.43%. Dividend yield is calculated by dividing the annual dividend by the current stock price (1.26/51.75=0.02434). Compared to the S&P 500 dividend yield of 1.82% for April 2019, Intel has a higher ratio than the industrial average. While a higher dividend yield does not necessarily mean a company is better or healthier, Intel’s steady increase in the amount of dividend paid over the years proves it is a fundamentally sound company with a good sustainable dividend payout.

While Intel’s total current assets have been decreasing year over year for the last four years (38,320,000 in 2015 to 28,787,000 in 2018), their total assets saw an increase (101,459,000 to 127,963,000). Total current liabilities increased in 2016 (20,302,000) but decreased in the following years (16,626,000 in 2018). Total liabilities have been increasing over the year (54,230,000 in 2017, 47,101,000 in 2016, and 40,374,000 in 2015) but saw a small decrease in 2018 (53,400,000). The increase of total revenue year over year since 2015 has led to an increase in gross profit even with the cost of revenue being higher (total revenue increased from 55,355,000 in 2015 to 70,848,000 in 2018 causing gross profit to increase from 34,679,000 to 43,737,000 over the same years). Net income doubled in 2018 (21.053,000) compared to previous years (9,601,000 in 2017 and 10,316,000 in 2016) (Intel).

Intel’s current ratio is 1.73 (current ratio=current assets (28,787,000)/current liabilities (16,626,000)). Its quick ratio is 1.30, which is obtained by subtracting inventory from the current asset and then dividing by the current liabilities ((28,787,000-7,253,000)/16,626,000). The net profit margin is 0.30 (net profit margin=net income/net sales=21,053,000/70,848,000). The ROE is 0.28. The operating margin is 0.33. All of these are healthy ratios and, for the most part, Intel is performing better than the industry average, indicating that it is doing relatively well compared to other markets.

As of May 3rd, the stock price is $51.75, and the shares outstanding is 4.497 billion. By multiplying these two numbers, the market capitalization is obtained, which is 232.7 billion (51.75 x 4.497 billion = 232,719,750,000). AMD, Intel’s top American competitor, has shares outstanding of 1.094 billion and a current stock price of $28.22, meaning its market capitalization is 30.9 billion (1.094 x 28.22= 30,872,680,000). Intel is more than seven times larger than AMD. A size of a company is important since it is a basic determinant of various attributes in which investors are interested, such as risk. Therefore, Intel should pose less of a risk than AMD.

According to Zacks Investment Research, a company dedicated to the production of research that provides investors with financial data and analysis, investors should hold onto the Intel stocks. Also, according to Nasdaq.com, twelve analysts recommend buying the stock, with ten saying it’s a strong buy. Fourteen say to hold onto the stock and two say to sell. Among 38 analysts at CNN Business, fifteen say to hold, thirteen say to buy, and six say to sell. This rating has remained relatively same since the beginning of the year, with hold being the general consensus (CNN).

While Intel stocks had taken a plunge recently and its market is suffering from a global semiconductor market slowdown, Intel is likely to be a good investment. Despite the declines it has seen in the last month, its relatively positive financial ratios and trends in its financial statements indicate the company is running efficiently in the long run. Intel’s reliable dividend history, increasing year after year, also shows it is sustainable and that investors will profit if they were to invest in its stocks. According to experts, INTC is projected to recover and increase over the year as the market improves. Also, most analysts recommend holding or buying its stock since they think Intel is likely to return back on track. Intel is among the largest players in this market. As the slowdown rebounds and the semiconductor market improves, its stocks should see an increase, making this recent dip look like a profitable buying opportunity.    

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