Income · Stocks to Consider and Updates

Intel Beats Estimates; Provides Tempered Outlook

INTC Chip giant Intel Corp. (NASDAQ: INTC – $29.78) reported mixed results during its fourth-quarter conference call. On a positive note, revenues and share net, at $14.9 billion and $0.74, respectively, came in stronger than expectations of $14.8 billion and $0.63. Nevertheless, Intel stock is trading about 10% lower on the news, primarily due to the company’s somewhat tepid forecast for the March term and full-year 2016. Data Center Group revenues improved 4% sequentially and 5% relative to the prior-year period. Business within the Internet of Things niche climbed to $625 million, an increase of 8% and 6% on a linked-quarter and year-over-year basis, respectively. Results at the other three segments were more of a mixed bag. Client Computing comparisons were up 3% as compared to the September interim, but fell 1% compared to the December, 2014 quarter. Furthermore, the Non-Volatile Memory Solution Group was flat sequentially, though it improved 10% relative to the year-earlier tally. Finally, Software and Services fell modestly on both a sequential and year-to-year basis, to $543 million.

For the year, the company managed to keep the bottom line stable compared to 2014. This is no small feat, given the lackluster conditions that plagued the personal computer market. Expectations for the March quarter were less than inspiring, however. Investors should keep in mind that Intel closed on its purchase of Altera at the start of January. Hence, year-over-year results will be difficult to compare on apples-to-apples basis. With that in mind, Intel gave first-quarter revenue guidance of $14 billion (plus or minus $500 million). Hence, when including the impact of the recent acquisition, management’s forecast failed to live up to expectations. There are many factors that have come into play: A marked slowdown in China’s economy, which has constrained results for many semiconductor manufacturers; the specter of higher interest rates will likely increase borrowing costs in the months ahead, which might hinder spending somewhat; and Intel’s heavy exposure to the mature personal computer market ought to keep growth under wraps moving forward.

Reflecting the recent news, I now look for 2016 revenues and share net of $58.3 billion and $2.35, respectively. On a more positive note, the board of directors recently increased the dividend to an annual run-rate of $1.04 a share, an increase of 8.3%, yielding nearly 3%. Though this blue chips 3- to 5-year recovery potential might appear enticing at recent valuations, conservative accounts ought to note that stock-price volatility might be higher than normal in the months ahead, given the somewhat troubling macroeconomic factors. 


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