Profitability & Effectiveness (ttm)



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Investment Rating BUY
Pricing

Closing Price $19.06

52 Week High $28.84

52 Week Low $18.60



Valuation

FY (Dec) Dil. EPS P/E

2004 $1.17 29.1

2005 $1.40 13.59


Profitability &

Effectiveness (ttm)

ROA 16.54%

ROE 21.74%

Profit Margin 20.43%

Operating Margin 28.07%

Gross Margin 55%


Market Data

Total Assets (000) 48,314

Volume (000) 92,188

Market Cap (Bil) 112.61

Avg. Vol (000)* 83,132

EPS (ttm) 1.40

P/E (ttm) 14.89

Div & Yield 0.40 (2.10%)

ttm- last 12 months

*-last 3 months


Nick Wilson

ngwzpd@mizzou.edu

Intel Corporation (INTC)
I. Investment Highlights
Company Profile (www.intel.com)
Founded in 1968, Intel has become largest chip maker in the world and leading manufacturer of computer, networking, and communications products. Intel manufactures semiconductor devices, microcomputer chips, chipsets, motherboards and flash memory. Intel employs approximately 99,900 employees with annual sales of $38.8 billion. Intel is based in Santa Clara, California but has 294 offices located around the globe.

Intel unveiled the first microprocessor in 1971 to the world and continues to be the first in developing new technologies and also had its IPO with an initial price per share of $23.50 raising $6.8m that same year. In 1975, one of the first personal computers sported a processor from Intel. After 11 years of doing business, Intel makes it on the Fortune 500 list. By 1994, Intel chips power 85% of desktop computers sold worldwide, and was added to the Dow Jones Industrial Average in 1999. Intel Centrino, introduced in 2003, quickly becomes the best chip used for laptop computers increasing speed and battery life. A huge announcement comes when Apple decides that it will sport Intel microprocessors for Apple computers in 2006, converting all Apple computers by the end of 2007. In 2006, Intel has a new branding and marketing strategy and two new platforms (Intel Centrino Duo mobile technology and Intel Core Duo Processor). The customers of Intel include original equipment and design manufacturers that make computer systems, cellular and handheld computing devices and telecommunications and networking communications equipment; Individuals, large and small businesses and service providers; and other manufacturers. Their products are mostly sold in the Americas, Europe, Asia-Pacific and Japan. Dell and HP consisted of 35% of net sales in 2004. Life cycles of products are very short, typically not being longer than a year. Competitors include AMD, IBM and VIA. Tax rate of 31%. Their goal is to be the preeminent provider of silicon chips and platform solutions to the worldwide digital economy.


II. Executive Summary


Intel is a supplier of advanced technology solutions for the computing and communications industries. It consists of two product-line operating segments: the Intel Architecture business and the Intel Communications Group (ICG). The Intel Architecture business provides advanced technologies to support the desktop, mobile and enterprise computing market segments. ICG offers products like flash memory, as well as platform solutions for the wireless handheld computing and communications market segments. In addition, ICG offers wired and wireless connectivity products and key networking and communications infrastructure components.

Investment Recommendation: Buy


Intel is based on the core strengths of Manufacturing and Technology, architecture/platforms, worldwide ecosystem, global presence brand and corporate excellence. From these strengths, Intel derives their competitive advantages as volume economics, great products with differentiated features, unparalleled industry commitment, global reach and brand strength, and 18 Years of Profitability. These competitive advantages result in growth through platforms.

Pros:


  • New micro-processors for the lab-top market

  • Continuous investment in R&D leasing to new innovations in chips using less electricity

  • Joint venture with Microsoft in the ultra compact computer market

  • Increase of dividend

  • Stock buyback of up $25 billion

  • Joint venture with Micron in NAND flash memory market

  • First NOR chip factory built

  • Health-care potential

  • Apple using Intel chips

Cons:


  • Losing market share to AMD

  • Sales and revenue decreased last period and potentially this year

  • Decrease in gross profit margins

  • Decreasing demand in the PC market, in particular Dell’s slowing sales

  • High growth in inventories

Intel experienced high growth in inventories the past year with decreasing sales and profit margins. Inventories stood at 3.1 billion in Dec 05 and grew just over 25% from 04. This signals a possible problem in the future if inventories continue to grow at double digit rates.



III. Growth Dynamics



In Q106, Intel reported net income of $1.35 billion, or 23 cents a share, compared to $2.18 billion, or 35 cents a share a year earlier. Revenue declined 5% to $8.94 billion from $9.43 billion or roughly 5.2%. Revenue for 2006 is expected to be 3% lower than the total in 2005 of $38.8 billion, despite an increase in revenue from 04 to 05. Intel’s gross margin expectation for 2006 is 53% plus or minus a few points, yet margins slipped in April to 55.1%, when initially it was predicted at 59%.


Intel expects that capital spending in 2006 will be approximately $6.9 billion, plus or minus $200 million, compared to $5.8 billion in 2005. Most of the projected increase will be spent on construction and capital equipment related to the next-generation, 45-nanometer process technology.
An increase in dividends by 25% active for 2006 Q1 and announced a stock buyback of up to $25 billion in 2006. Also Intel unveils the Viiv brand name for the PC market.

The company's chief executive officer told analysts Intel will cut about $1 billion from 2006 spending, and begin a "comprehensive analysis" of operations to improve efficiency in 2007 and beyond.


The first chip maker to sample NOR multi-level cell flash memory chips at 1-gigabit density using its advanced 65-nanometer (nm) process technology. Intel’s NOR Flash memory chips are used in devices such as cell phones to manage critical phone operations, handle Personal Information Management data and to store photos, music and videos.

IV. Economic and Industry Environment

Intel is in a continuous battle with AMD in the microprocessor fields, which is where Intel derives the majority of its revenues. With competition stiff in the microprocessor segment, Intel is also hoping to join the NAND Flash memory playing field with its joint venture with Micron Technologies, though the plant will not be completed in operating until 2008.

Also, the rising price of oil causes consumers to spend less on expendable goods, mainly computing devices. This is evident with Intel’s increase in inventory in Dec 05. So, as one can see from the graph below, analyst are not predicting Intel to have a great year, yet revenues are expected to increase from 05. The consumer confidence, a huge indicator of spending amongst consumers has also been slowing, signaling lower spending amounts directly related to the high prices at the pump.

The CEO of Intel as vowed to reverse AMD’s gains with chips based on a new internal design and with advantages in production processes and manufacturing capacity. He also stated a 35% revenue growth in Latin America.



Revenue Est

Current Qtr
Jun-06

Next Qtr
Sep-06

Current Year
Dec-06

Next Year
Dec-07

Avg. Estimate

8.85B

9.63B

38.00B

41.32B

No. of Analysts

35

35

38

30

Low Estimate

8.25B

9.02B

35.05B

36.33B

High Estimate

9.90B

10.70B

41.64B

45.00B

Year Ago Sales

9.23B

9.96B

N/A

38.00B

Sales Growth (year/est)

-4.1%

-3.3%

N/A

8.7%

Source: finance.yahoo.com

Competition

Intense competition from AMD continues to be the most important competitor of Intel. Current Analysis, a market-research firm that samples retailers, estimates that AMD's share of both desktop and laptop PCs sold in major U.S. stores was 59% in January, up from 38% six months earlier. Intel's share declined to 40% from 60% over that period, the company said. At AMD, meanwhile, microprocessor sales surged and its profit margin topped Intel's, at 58.5% which is a first in the companies' 25-year rivalry. In a WSJ article, one stated that “AMD could win a quarter or a third of the chip market even if Intel counterattacks, as expected, with price cuts and improved products.”



Samsung(Samsung.com)

Since its founding in 1938, SAMSUNG has maintained a mission statement that responds both to its own change, and to new developments in the world: “Economic contribution to the nation,” “Priority to human resources,” “Pursuit of rationalism.” Each slogan represents significant moments in SAMSUNG’s history, reflecting different stages of the company’s growth from a domestic industrial leader into a global consumer electronics powerhouse. In the 1990’s, we transformed our mission statement to keep pace with our growing global operations, rapid changes in the world economy, and escalating competition from well-established rivals. Our management philosophy represents our strong determination to contribute directly to the prosperity of people all over the world. The talent, creativity and dedication of our people is key to our efforts, and the strides we’ve made in technology offer endless possibilities to achieve higher standards of living everywhere. At SAMSUNG, We believe that the success of our contributions to society and to the mutual prosperity of people across national boundaries truly depends on how we manage our company. Our goal is to create the future with our customers.


Toshiba (Toshiba.com)

Toshiba, a world leader in high technology, is a diversified manufacturer and marketer of advanced electronic and electrical products, spanning information & communications equipment and systems, Internet-based solutions and services, electronic components and materials, power systems, industrial and social infrastructure systems, and household appliances.


Advanced Micro Devices Inc. (AMD )

AMD is the second largest chip producing next to Intel. AMD has slowly eroded market share from Intel by focusing on computer makers’ desire for choices of suppliers in order to differentiate products. One example would be H-P selecting AMD to specifically use AMD chips. More recently, AMD rolled out a new microprocessor called the Opteron. The new chip is used by IBM, H-P and Sun Microsystems. It draws less power than the rival chip from Intel, which is very important to companies that operate thousands of network servers. Slowly, more and more businesses are using AMD chips, shifting from the long favored Intel chips. AMD has also filed suit against Intel for damages of $55m.


Motorola Inc. (www.motorola.com )

Motorola is known around the world for innovation and leadership in wireless and broadband communications.  Inspired by our vision of Seamless Mobility, the people of Motorola are committed to helping you get and stay connected simply and seamlessly to the people, information, and entertainment that you want and need.  We do this by designing and delivering the "must have" products, "must do" experiences and powerful networks - along with a full complement of support services.  A Fortune 100 company with global presence and impact, Motorola had sales of $36.8 billion in 2005


Texas Instruments (www.ti.com)
Texas Instruments Incorporated is the world leader in digital signal processing and analog technologies, the semiconductor engines of the Internet age.
TI is a leader in the real-time technologies that help people communicate. We are moving fast to drive the Internet age forward with semiconductor solutions for large markets such as wireless and broadband access and for new emerging markets such as digital cameras and digital audio.
TI envisions a world where every phone call, every Internet connection, every photograph you take, every song you listen to are touched by the power of TI's Digital Signal Processor (DSP) and Analog technologies.
That dream is coming true. TI is making it happen right now.

V. Company Position
Market Information
Intel is a dominant worldwide leader in the semiconductor industry with chips plants based internationally. They strive to maintain their market position as the number one chip manufacturer and continue to lead major innovative products. They currently hold the majority of the PC market as shown below.

Product Development, R&D



As shown above, Intel continues to devote a large portion of revenues towards the development of new technology and products. With more than $4 billion invested in nearly 1,000 companies in some 27 countries, Intel’s venture program has been among the most expansive in the corporate world.



Recently, Intel has made numerous deals with a number of various companies. Intel signed a deal with Baidu.com, the Chinese search engine, to jointly develop search products for computers and home appliances and related applications in China.
Intel, with help from governments and telecom companies, is attempting to design affordable computers for developing countries. The “Discover the PC” initiative begins a low-cost distribution system in Mexico carried out by Telefonos de Mexico. Intel is stressing the creation of “full-featured” computers with internet connectivity. Other companies have began such projects, yet such computers included in those projects are very stripped-down and can not compete with the functions of Intel’s computers.
Intel plans to invest in a new 300-millimeter chip facility together with Micron Technology Inc. to produce NAND flash chips, with a production increase planned by late 2008 or early 2009. The joint venture with Micron is named IM Flash Technologies. Currently, Samsung and Toshiba are the market leaders in the NAND Flash business. NAND flash chips are used in MP3 players and digital cameras.
Intel also announced plans to build a $300 million chip-assembly and testing facility in southern Vietnam, with production slated to start in the second half of 2007. This the first investment by the semiconductor industry in the Southeast Asian nation.
Intel enters the mini computer market in a joint venture with Microsoft. The Sony Vaio SZ160 and the Lenovo ThinkPad X60s both weigh in at under four pounds and has been dubbed, Origami. Both use Intel’s new Dual Core processor, which packs the equivalent of two processors into one.
Intel has a strategy to deliver technology for health care, a market where the inefficiencies are striking but the potential payoff for the chip maker is years away. It is developing prototypes of specialized computers that could help medical professionals as well as consumers who are trying to manage chronic conditions at home. The device could automatically call up the correct medical file when a doctor walked up to a patient wearing an identification tag transmitting a radio signal. It could also come with a high-tech stethoscope and built-in camera to share data with professionals in other locations.
Threat of Substitution
The threat of substitution for Intel is very small since AMD is the main competitor. A significant of capital would be needed by AMD to overtake Intel, capital that AMD does not have. At one point, Intel and AMD worked close together developing a chip jointly. Intel has considered purchasing AMD, but anti-trust laws have made a takeover nearly impossible. Not to mention, a takeover attempt by Intel would be met with mush resistance from its main rival.
Image
Intel is widely known for powering much of the PC and lab-tops used by businesses and consumers. The “Intel Inside” logo has become a dominant trademark within the electronic world and a symbol of quality. Intel has deep connections within the local communities and continues to promote worker welfare.
Management Quality
Intel continues to yield great ROE and ROA and is far better than any company in its industry or sector. It receives numerous awards annually for being one of the best places to work at for mothers, minorities and entry level for college students. It is admired globally and has a very strong reputation for quality. Also among the world’s best in sustainability.
VI. Financial Statement Analysis
Financial Ratios
Valuation Ratios Company Industry Sector S&P 500

P/E Ratio (TTM) 14.86 28.82 33.50 22.09

P/E High - Last 5 Yrs. 162.62 81.51 62.10 37.92

P/E Low - Last 5 Yrs. 13.87 15.86 19.33 14.82

Beta 2.17 2.62 1.92 1.00

Price to Sales (TTM) 2.89 4.92 5.74 3.02

Price to Book (MRQ) 3.25 4.21 5.89 3.92

Price to Tangible Book 3.64 4.86 7.72 15

Price to Cash Flow (TTM) 14.64 24.33 27.01 15.98

Price to Free Cash Flow (TTM) N/A 32.44 34.21 29.88

% Owned Institutions 57.64 62.09 43.18 65.67


Dividends

Company Industry Sector S&P 500

Dividend Yield 2.10% 1.41% 1.10% 2.11%

Dividend Yield - 5 Year Avg. 0.01% 0.25% 0.64% 1.75%

Dividend 5 Year Growth Rate 35.52% 28.51% 11.64% 10.30%

Payout Ratio (TTM) N/A 9.20 11.60 27.41


Financial Strength

Company Industry Sector S&P 500

Quick Ratio (MRQ) 1.47 3.05 2.77 1.31

Current Ratio (MRQ) 1.83 3.82 3.25 1.82

LT Debt to Equity (MRQ) 0.06 0.13 0.25 0.48

Total Debt to Equity (MRQ) 0.07 0.14 0.28 0.70

Interest Coverage (TTM) N/A 13.22 12.41 14.04




Profitability Ratios

Company Industry Sector S&P 500

Gross Margin (TTM) 58.38 51.13 53.87 45.50

Gross Margin - 5 Yr. Avg. 55.13 45.80 51.10 44.60

EBITD Margin (TTM) 39.56 22.96 22.06 22.51

EBITD - 5 Yr. Avg. 40.13 12.49 15.07 20.08

Operating Margin (TTM) 28.07 18.45 18.66 20.89

Operating Margin - 5 Yr. Avg. 23.26 8.29 11.27 18.42

Pre-Tax Margin (TTM) 29.53 19.40 20.68 18.23

Pre-Tax Margin - 5 Yr. Avg. 23.55 8.91 12.92 16.79

Net Profit Margin (TTM) 20.43 14.78 15.04 13.75

Net Profit Margin - 5 Yr. Avg. 16.76 5.46 7.78 11.29

Effective Tax Rate (TTM) 30.79 25.03 27.84 30.77

Effective Tax Rate - 5 Yr. Avg. 28.83 25.00 29.40 31.92




Management Effectiveness

Company Industry Sector S&P 500

Return On Assets (TTM) 16.54 11.29 11.20 8.13

Return On Assets - 5 Yr. Avg. 11.30 2.72 5.74 6.33

Return On Investment (TTM) 20.52 13.65 15.09 11.99

Return On Investment - 5 Yr Avg 13.45 3.21 8.14 9.82

Return On Equity (TTM) 21.74 14.54 18.50 19.61

Return On Equity - 5 Yr. Avg. 14.22 3.01 11.24 17.64




Efficiency

Company Industry Sector S&P 500

Revenue/Employee (TTM) 383,704 398,858 491,117 870,372

Net Income/Employee (TTM) 78,408 71,015 94,870 1 07,913

Receivable Turnover (TTM) 10.74 9.00 7.80 10.51

Inventory Turnover (TTM) 5.02 5.19 12.90 12.98



Asset Turnover (TTM) 0.81 0.74 0.83 0.98




DIRECT COMPETITOR COMPARISON

 













INTC

AMD

Pvt1

TXN

Industry

Market Cap:

111.25B

15.78B

N/A

54.58B

4.12B

Employ­ees:

99,900

9,860

123,0001

35,207

7.98K

Qtrly Rev Growth (yoy):

6.30%

8.60%

N/A

12.20%

7.40%

Revenue (ttm):

38.83B

5.95B

78.25B1

14.02B

1.26B

Gross Margin (ttm):

59.73%

46.22%

N/A

48.52%

44.78%

EBITDA (ttm):

16.83B

1.73B

N/A

4.58B

404.15M

Oper Margins (ttm):

31.50%

9.27%

N/A

22.03%

16.38%

Net Income (ttm):

8.66B

367.43M

10.30B1

2.50B

85.88M

EPS (ttm):

1.402

0.807

N/A

1.522

0.73

P/E (ttm):

13.49

40.66

N/A

23.02

26.56

PEG (5 yr expected):

1.33

1.37

N/A

1.45

1.45

P/S (ttm):

2.89

2.56

N/A

3.93

2.74











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