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Updated Intel Analysis

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Updated Intel Analysis

  1. 1. Focus Info Sheet As of October 21, 2009 Intel Corp. Risk Profile: Moderate (NASDAQ; INTC; $20.18; Tech & Telecom Long-Term Core Holding) Share Data: Justin H. Burgin 52 Week Range: $20.83 - $12.08 Senior Tech & Telecom Analyst Shares Outstanding: 5.6 billion Market Cap: $113 billion Average Daily Volume: 62.9 million Consumer Still in the Driver’s Seat… Institutional Holdings: 67% Q3 ’09 Results Well-Ahead of Expectations Tangible Book Value: $6.98 Intel reported strong Q3 ’09 results with both revenue and margins ahead of the Street Beta: 1.08 consensus. On the numbers, revenue and EPS of $9.4 billion and $0.33 were above the Short Int. (% of float): 1.1% upwardly revised (back in late August) First Call estimates of $9.0 billion and $0.28, Valuation: respectively. The sequential revenue improvement was the company’s best in more than Trailing P/E Ratio: 30.6 30 years. Forward P/E Ratio: 13.8 Mobility leads the way Price/Sales: 3.50 Mobility (primarily notebook processors) was a key driver for Q3 growth, which helped Price/Book Value: 3.16 overall gross margin to improve seven points sequentially. Reflecting this was the fact that Price/Op Cash Flow: 13.1 the company shipped more notebook chipsets and processors than Atom-based chipsets Return on Equity: 9.5% and processors (for low-end netbooks). As a whole (but excluding Atom processors), Profitability Measures: Intel’s microprocessor revenue is up 23% since the market bottomed in Q1 ’09. Gross Margin: 63.6% Operating Margin: 16.8% Risk Factors Net Margin: 7.10% Intel remains closely linked to the global computing marketplace (desktops, servers, and notebooks) and the larger worldwide economic cycle. Thus far in the cycle, consumer and Dividend Information: corporate customers continue to curtail spending for PCs (and thus Intel processors) given Annual Dividend: $0.56 economic uncertainty and will attempt to “make do” with existing equipment. Also, PC Indicated Yield: 2.8% procurement is essentially a transaction business with no annual recurring revenue, 5-Year Growth Rate: 18% making near-term forecasting difficult. Furthermore, the company is capital intensive as it QDI Eligible: Yes transitions to the next-generation process technology in its manufacturing process. Credit Ratings: Standard & Poor’s: BB+ Moody’s: Ba1 First Call Revenue Estimates (in millions of USD) Q1 Q2 Q3 Q4 Year 2008 (A) $9,673 $9,470 $10,217 $8,226 $37,586 2009 $7,145 (A) $8,024 (A) $9,389 (A) $10,138 $34,575 2010 $9,242 $9,144 $9,821 $10,492 $38,514 First Call EPS Estimates Q1 Q2 Q3 Q4 Year 2008 (A) $0.25 $0.28 $0.35 $0.04 $0.92 2009 $0.11 (A) $0.18 (A) $0.33 (A) $0.43 $0.80 2010 $0.33 $0.32 $0.38 $0.45 $1.46 Note: First Call estimates may not add due to rounding. Source: Baseline, Bloomberg, and Company Reports PLEASE NOTE: FOR IMPORTANT DISCLOSURES, INCLUDING POTENTIAL CONFLICTS OF INTEREST, PLEASE SEE THE LAST PAGE OF THIS PUBLICATION.
  2. 2. Ameriprise Financial Focus Info Sheet October 21, 2009 Investment Highlights: Intel reported Q3 ’09 revenue of $9.4 billion and gross margin of 58%, both well above the company’s revised outlook given back on 8/28/09 for $9.0 billion in sales and a gross margin mid-point of 54%. From a magnitude perspective, when measured against guidance prior to the late-August upward revenue revision, Intel’s sales were up nearly $1 billion, using a $9.4b reported Q3 number versus “old” guidance of $8.5 billion given post the Q2 earnings release. On a sequential basis, Q3 marked the company’s strongest sequential revenue performance in 30 years. As one would expect, given the strong top-line growth, Q3 EPS of $0.33 were also ahead of the First Call consensus estimate of $0.28. Gross margin performance and the positive impact of a higher unit demand on a large fixed cost structure played out well in Q3 and is expected to continue into the current fourth quarter. For example, in Q3 Intel’s gross margin was up 7 points to just under 58% and guidance for Q4 is for another 4 point rise to 62% (+/-). There are several factors that are at work in the gross margin number, but the primary ones include: 1) simply higher unit volume enabling the company to spread the costs across more units, 2) a slightly richer product mix as there should be fewer low-margin chipsets shipped in Q4 versus previous quarters, and 3) and over the longer-term, re-using capital from the existing 45nm process technology in the upcoming 32nm transition. As in the previous quarter, the global consumer market was the primary driver for improved demand with the enterprise customer remaining somewhat subdued. An additional theme that continues to play out for Intel is the same consumer’s adoption of portability computing versus traditional desktop systems. For example, mobile processors and chipsets were particularly strong for Intel in the past two quarters, and the mobility segment (includes notebooks and Atom processors) now makes up $4.1 billion in sales, nearly matching the company’s $4.9 billion in revenue that comes from the combined server and desktop processor markets. Inventory levels remain a key investor concern as debates continue on possible double-ordering and a ramp ahead of the pending Windows 7 operating system launch later this month. Recall that the Q2 over Q1 sales growth was the best in approximately 20 years and the most recent Q3 over Q2 growth was the best sequential growth in 30 years. As we have noted before, the tug-of-war between what is “real” underlying demand versus inventory restocking (and potential double-ordering) may not come to fruition until many months in the future. However, investors may find it useful to look at Intel’s own inventory trends and see how this compares with stock price performance (see chart below). Intel Sales-to-Inventory & Stock Price 3.75 $33 Price (Qtrly) 3.25 $28 Sls/Inv 2.75 $23 2.25 $18 1.75 $13 Q3 Q1 4 Q2 Q3 Q4 Q2 Q3 Q1 4 6 Q2 Q3 Q1 4 7 4 Q2 Q3 Q1 4 8 Q2 Q3 Q1 4 9 5 Q2 Q Q Q Q Q '0 '0 '0 '0 '0 '0 Ratio Q1 Ave Ratio Source: Bloomberg, Baseline, Ameriprise Financial Services, Inc Price The chart above looks at the change in Intel’s inventory value (as it relates to sales) and the quarterly stock price performance. While no single ratio can accurately reflect a company’s complete business model, over the past six years there appears to be a pattern in Intel’s quarterly stock price performance and levels of internal company inventory. Specifically, as the chart above shows, once the sales-to-inventory ratio bottoms out (circled) there appears to be minimal downside for the stock using past cycles as a guide. (Although not pictured, overlaying the larger PC industry’s sales-to- inventory ratio provides a similar pattern.) As such, we take two pieces of data from this: 1) industry inventory de-stocking has already taken place and is on the upswing, and 2) there may be limited downside to Intel shares from here using past cycles as an indicator. In sum, another strong quarter for Intel with healthy sequential sales gains in key markets including notebooks. The benefits that accompany sales rising faster than expenses and spreading of fixed costs to a larger unit volume are driving strong margin performance and earnings. However, we caution additional near-term gains for Intel shares could be a function of unit volumes following the impending launch of the new Windows 7 operating system in late October. Longer-term, we believe the company is well-positioned for a potential corporate refresh cycle in 2010+ and the on- going shift to portable computing. Page 2 of 4
  3. 3. Ameriprise Financial Focus Info Sheet October 21, 2009 Intel Q3 '09 Revenue Company Profile: Intel is the world’s largest chip maker designing and manufacturing products for the computing, communications, and networking Ot her markets. It operates in two segments: The Digital Enterprise group primarily 4% includes desktop and servers microprocessors and related chipsets and motherboards. The Mobility segment includes notebook processors and Digit al chipsets and other products. Mobilit y Ent er prise 44% 52% Source: Baseline, Bloomberg, Company Reports, and Ameriprise Financial Services, Inc. Ameriprise Financial Services, Inc. The Dime Building 719 Griswold Street Suite 1700 Detroit, MI 48226 Tel. 313.628.1200 For additional information or to locate your nearest branch office, visit ameriprise.com Director of Research Lyle B. Schonberger SECTOR ANALYSTS PORTFOLIO STRATEGY ANALYSTS FIXED INCOME LIAISON Marc A. Zabicki, CFA Consumer Goods and Services Economic Strategist Patrick Diedrickson, CFA Russell T. Price, CFA ADMINISTRATIVE ASSISTANT Energy / Utilities Market Strategist Robert Engle Leze Thaqi Marc A. Zabicki, CFA Financial Services Model Portfolio Strategists Lori Wilking Matthew J. Koellner, CFA Steven F. Shepich, CFA, CPA Health Care E. Eugene Robinson PACKAGED PRODUCT ANALYSTS Industrials / Materials Mutual Funds & Exchange Traded Funds (ETFs) Frederick M. Schultz Anthony M. Saglimbene Page 3 of 4
  4. 4. Ameriprise Financial Focus Info Sheet October 21, 2009 Ameriprise Financial ratings for INTC (INTEL CORP) Closing Price Oct 20, 2009: $20.18 09/30/05 12/29/06 06/30/08 06/30/08 07/24/08 06/30/09 Drop GL-MP:$24.65 Add MV-MP:$20.25 Add C-MP:$21.48 Add CIG-MP:$21.48 Drop C-MP:$21.67 Drop MV-MP:$16.55 T:N/A T:N/A T:N/A T:N/A T:N/A T:N/A 26 21 16 11 2007 Apr Jul Oct 2008 Apr Jul Oct 2009 Apr Jul Oct Legend: © Investars.com T=Price Target KEY: FL: Sector Focus List, MP: Model Portfolio, CBFL: Convertible Bond Focus List. Carry Over Add MV-MP Add C-MP Add CIG-MP Drop C-MP Drop MV-MP The views expressed regarding the company(ies) and sector(s) featured in this publication reflect the personal views of the Ameriprise Financial Services, Inc. analyst(s) authoring the publication. Further, Ameriprise Financial Services, Inc. analyst compensation is neither directly nor indirectly related to the specific recommendations or views contained in this publication. For important disclosures on securities mentioned in this analysis, please review available third party research reports and charts with applicable disclosures on our website at ameriprise.com, or through your financial advisor, or by submitting a written request to Ameriprise Financial Services, Inc., 719 Griswold Street, Suite 1700, Detroit, MI, 48226. Definitions: From the universe of companies covered by the Ameriprise Financial Services, Inc. approved third party research providers (Standard & Poor's, Morningstar, and Reuters), Focus List selections reflect securities that our analysts believe represent good value based on current conditions. If a security is added to a Focus List, we deem it to be appropriate for investment; if a security is removed from a Focus List, you should continue to review available third party research sources in order to obtain an investment opinion, price target, and additional fundamental analysis. For ratings definition purposes, securities included on our Focus Lists most closely correlate with an investment opinion of “Buy”; therefore, 100% of the securities on our Focus Lists meet this definition. For purposes of constructing our Focus List, a rating of “Buy” is defined as those securities that our analysts believe represent good value based on current conditions. Additionally, we note that each of our respective approved third party research providers has its own unique rating system, disclosed within their research reports. Standard & Poor's 500® Index (S&P 500®) is comprised of 500 stocks representing major U.S. industrial sectors. Performance figures are inclusive of dividends reinvested. S&P 500 is a registered service mark of The McGraw-Hill Companies, Inc. It is not possible to invest directly in an index. Ameriprise Financial Services, Inc. does not have an investment banking relationship Intel. Ameriprise Financial Services, Inc. analysts are not compensated with regards to investment banking services. Except for the historical information contained herein, certain matters in this report are forward-looking statements or projections that are dependent upon certain risks and uncertainties, including but not limited to, such factors and considerations as global personal computer (PC) demand, corporate information technology (IT) spending patterns, the company’s ability to efficiently manufacture products and any potential manufacturing capacity constraints, global consumer electronics demand, global semiconductor supply and demand, and the overall health of the global technology market. See latest third party research reports and updates for risks pertaining to a particular security. The information and statistical data contained herein have been obtained from sources which we believe to be reliable but in no way are warranted by us as to accuracy or completeness. Estimates and opinions presented are based on information provided for Ameriprise Financial Services, Inc. The recommendations are exclusively based on an analysis of market conditions rather than the suitability of a proposed transaction for you. This report represents our findings as of the report date. We will not advise you as to any change in figures or our views. This is not a solicitation by us of any order to buy or sell. . For SmartTrade accounts, financial advisors may receive additional compensation on customer transactions in securities recommended by Ameriprise Financial Services, Inc. or for which Ameriprise Advisor Services, Inc. provides research. We, our affiliates and any officer, director, employee, stockholder or any member of their families, may have a position in, and may from time to time, purchase or sell any of the aforementioned securities. Investments and financial advisory services and securities products offered through Ameriprise Financial Services, Inc., Member FINRA and SIPC, a subsidiary of Ameriprise Financial, Inc. Additional information on the securities mentioned is available upon written request. Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. Neither Ameriprise Financial, nor any of its advisors or representatives, provides tax advice. © 2009 Ameriprise Financial, Inc. All rights reserved. Page 4 of 4

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