Sonny & Intel Investors,
Have been away for a long while, but still long INTC. Given today's carnage, thought I'd post some good news (also placed on the Intel thread).
Cheers, Greg.
aolsnapshot.fool.com
Intel's Market Cap Doubles
By Paul Larson (TMF Parlay)
April 13, 2000
Intel Corp. Ticker: (Nasdaq: INTC)
Phone: 408-765-1480
Website: www.intel.com
Price (4/12/00): $121 7/8
How Did It Double?
Much fanfare was made a few weeks ago when Cisco Systems (Nasdaq: CSCO) eclipsed Microsoft (Nasdaq: MSFT) to become the world's largest company in terms of market capitalization. There is another company that, as of this writing, has quietly nosed ahead of Microsoft in size -- Intel.
Intel's stock price has been steadily rising for some time now. The shares dipped to their 52-week low last May when they traded near $50, but the stock proceeded to head towards the sky after that point. On March 22, the stock fetched just above $145, a new all-time high. Seeing a company of Intel's size nearly triple inside of a year is quite impressive by any standard. Between its annual low and high, Intel saw its market capitalization rise by over $330 billion.
As you might guess, there has been some good news flowing from inside the walls of Intel. The company had a fairly rough 1998, with Intel's sales and profit growth taking a siesta for several quarters -- but 1999 proved to be an entirely different story. In each of the past four quarters, Intel has posted higher revenue than the previous year. For the entire year, sales were up 11.9%. Gross margins were also on the rise, going from a low of 48% in Q2 1998 back up to 61% in the most recent quarter. All together the company earned $2.11 per share last year, up from $1.73 in 1998. Even higher bottom-line growth is expected next year.
Just about any way you compute it, Intel's stock has done very well over the past twelve months and over the long haul. In a nutshell, Intel is as a blue as a blue chip technology company comes, and it has rewarded longtime shareholders quite handsomely.
Business Description
Intel is the world's largest semiconductor chip company, making a wide variety of products for the computing and communications industries. The company is best known for its Pentium line of microprocessors used with personal computers, but it also produces motherboard chipsets, flash memory, networking gear, embedded processors, and a large array of other computer peripheral products.
A new line of business that Intel has recently entered is data services. Intel is in the process of building several large "server farms" around the globe, providing network infrastructure in a centralized and secure location for other companies looking to use the Internet.
Intel also has an investment arm, Intel Capital. This arm of the company makes strategic equity investments in other firms that are growing Intel's target markets for computer and networking products. These investments not only stimulate growth in areas later to be served by Intel, but they have also been fairly profitable investments on their own. At the end of last quarter, Intel's investment portfolio of both private and public companies was valued somewhere near $8 billion. Moreover, Intel purchased outright 12 companies last year for a total price of approximately $6 billion.
Intel has just over 70,000 employees worldwide. The company was founded in 1968 and came public in 1971 at a split-adjusted price of 3.9 cents.
Financial Facts
Income Statement
12-month sales: $29.4 billion
12-month income: $7.3 billion
12-month EPS: $2.11
Profit Margin: 24.9%
Market Cap: $424.6 billion
Balance Sheet (12/25/99)
Cash: $11.4 billion
Current Assets: $17.8 billion
Current Liabilities: $7.1 billion
Long-term Debt: $1.0 billion
Ratios
Price-to-earnings: 57.8
Price-to-sales: 14.4
How Could You Have Found This Double?
Wall Street tends to overreact to bad news, and historically this especially seems to be the case with Intel. There's no doubt that 1998 was a tough and stagnant year for Intel with no sales growth and anemic margins, but Intel, like so many times in the past, bounced back with a vengeance.
One of the ways the company has succeeded is through operational excellence. Even though much noise was made about some of the competing chips coming from Advanced Micro Devices (NYSE: AMD) that were slightly faster than what Intel was producing, none of Intel's competitors can hold a candle to the company when it comes to producing large numbers of chips with the lowest cost structure in the industry. Without a doubt, Intel is in several extremely competitive markets, but it has proven itself extremely adept at providing the most product for the least cost.
Another buy signal was the margin improvement the company saw over the past year. Gross margins have now increased for six straight quarters, and the company's margins are still quite healthy across the board. Furthermore, Intel's core business is producing significant free cash flow that it is effectively being put to use. Even though the company has been very acquisitive of other businesses and has also been pumping increasing amounts into research and development, it has still had enough free cash flow to increase its dividend and continue with its fairly large share repurchase program. Eleven of the twelve companies Intel bought last year were bought with cash. When a company can produce such massive cash flow, it's an extremely good sign.
Where to From Here?
Semiconductor companies of all types are on fire right now as the industry is as healthy as it has been in several years. Computer and communications hardware makers just can't seem to get enough of the chips that Intel and its peers are producing. Intel has earmarked some $6 billion in capital investment over the next year to fill this demand, and very rarely have Intel's investments not paid off. It looks as if continued growth is in the cards for at least the next year or two.
It's also a fairly safe bet that Intel will continue on its acquisition spree. Already in 2000 the company has announced three acquisitions -- Voice Technologies Group, GIGA A/S, and Basis Communications. Combined, these deals amount to somewhere near $2 billion. Intel has more than enough cash and cash flow to continue gobbling up companies that offer complementary products to its own portfolio.
Intel will be releasing its quarterly earnings on Tuesday, April 18, and investors can listen to the post-earnings conference call over the Internet. Earnings of $0.69 per share are expected, which would be an all-time high amount of income for the company if it is achieved. Either way, next week investors get to peek at Intel's "report card" to make sure that the company's finances are indeed on track.
Longtime Intel shareholders should probably continue doing what they've been doing and holding, while those looking to buy the stock may want to consider Intel's dividend reinvestment program. It's no mistake that Intel is in the Fool's Drip Portfolio since it is a strong company with prospects for increasing dividends. Albeit, the stock price can be volatile, but those who are dollar cost averaging into the stock are essentially ridding themselves of the risk of bad timing.
The bottom line is that Intel is a solid company that is currently hitting on all cylinders. When an engine of Intel's size is running well, the horsepower (or, in this case, cash flow) that is produced is something to behold. The stock may not be a bargain today at over 40x forward profit estimates, but it's not a terribly outlandish valuation for a top-shelf company, either. In any case, Intel represents a company that has substantially rewarded its patient shareholders. |
