Wednesday, July 15, 2015

Intel (INTC) Q2 summary and analysis

You can view my notes on the Intel (INTC) Q2 2015 results and analyst conference held earlier today as a supplement to this analysis. I don't own INTC and it is no longer my investment style, but I've been interested in computing for decades and follow Intel's doings with interest.

First order, Intel is seeing declining y/y revenue. In the quarter revenue was down 5% from year-earlier, to $13.2 billion. Most of this revenue decline was for PC (desktop, notebook, and mobile) chips. The datacenter group had revenue up 10% y/y as computing continued to migrate to the cloud.

Despite the decline Intel is highly profitable. In many cases its chips get little or no competition from AMD, the only other x86 architecture chip company. Net income was $2.7 billion, leading to EPS of $0.55, which was flat y/y.

Guidance was for a seasonal Q3, which means revenue up about 8%.

Intel is still doing its best to enter the mobile phone and tablet market, but is still losing money at that. It is also behind in technology. It is finally sampling a 4G phone chip. I don't see Intel ever being competitive in phones, but they are acting competitive, so I could be wrong. No other chip company could lose so much money just trying to get a toehold in a crowded, highly competitive space.

Intel also indicated there will be a delay in shrinking transistors to 10 nm. That might help AMD, but given that AMD is still stuck at 28 nm, it won't help much unless AMD announces 16 nm chips sooner rather than later. Given AMD's history, my guess would be later.

I see Intel as a dividend stock, not a growth stock. It is true the acquisition of specialty chip maker Altera (ALTR) will give Intel a revenue and profit boost when it is finalized, but I think Intel management is just as likely to screw up Altera as to give it a leg up on its traditional rival Xilinx (XLNX).

Before results were announced Intel closed at $29.69. At that price the dividend currently works out to 3.23%, which is pretty good. It might not look so good if the Federal Reserve even raised interest rates significantly.

Disclosure: I don't own INTC or ALTR. I do own AMD and XLNX.

Keep diversified!

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