An impressive quarter is now in the books. The second quarter of 2009 saw the S&P 500 rally almost 16 percent, its best quarterly return since 1998. Of course, this is on the heels of the sharpest market downturn in 80 years. Despite the rally, which took stocks deserving and undeserving alike from cheap valuations, there are still some bargains to be had.
Case in point is one of the most dominant companies on the planet – Intel (INTC). Intel is the leading semiconductor chip maker, with a global market share of approximately 80 percent. The company manufactures microprocessors, chipsets, flash memory and motherboards for computing and communications products under two business segments: the Digital Enterprise Group and the Mobility Group.
In Fiscal 2008, the Digital Enterprise Group accounted for 56 percent of the company’s $37.6 billion in total sales. With chips for desktop computers, servers, and enterprise applications, the group boasts high margins, and account for nearly three quarters of Intel’s annual profit of $5.2 billion. Meanwhile, the Mobility Group, with products for notebook computers and netbooks accounted for most of the remainder.
The Mobility Group is also an area in which Intel is concentrating on growth – centered on its new Atom processor. The company has partnered with Taiwanese silicon chip maker TSMC which manufactures the chip – Intel’s smallest and lowest power processor. In exchange, Intel allows TSMC to use Atom technology, while maintaining tight control over which customers will have access to Atom processors from TSMC. The chips boasts better performance in areas that are key for mobile devices, including lower heat output and improved battery life – and are superior for high speed mobile internet access.
Intel has also just recently taken a step forward in mobile communications through a partnership with Nokia, the world’s largest mobile phone maker. The two companies will partner over the coming years to produce smartphones and other computing devices that will run on Intel chips, in contrast to the industry standard ARM chips. The phones will run Moblin and Maemo, two Linux-based operating systems developed by Intel and Nokia, among others.
Intel felt the pinch of the current economic storm – with demand falling and inventories contracting – as its sales fell 2 percent from 2007 levels. However, its operations have been buoyed by its international exposure, with 80 percent of its 2008 revenues coming from outside the Americas.
The Asia-Pacific region, the biggest region for the company, contributed half of overall revenues, with China alone contributing 13 percent. Chinese sales were down 6 percent in 2008, but grew 6.5 percent from 2006 to 2007, and we expect them to turn upward as the Chinese consumer grows stronger. Intel executives remain committed to the Chinese markets and have reported that chip sales in the region have outpaced most other countries during the first four months of this year.
The company is financially strong – with $11.8 billion in cash and equivalents at year end, and a stable debt rating of A from the major agencies. With this financial strength, Intel can remain at the cutting edge of technology. The company allocated $5.7 billion in research and development in 2008 – ironically the same amount Advanced Micro Devices, its main competitor, collected in sales.
Shares are trading at 17 times this year’s earnings, with long-term earnings growth pegged at 12 times. Further, at current levels Intel has a dividend yield of 3.3 percent, a boon for growth investors.
Urnanium and nuclear power plants
By AnonymousI understand that a major change is about to happen in positive way for uranium prices and nuclear power plants.
Uraniium prices prior to Sept 2008 were on there way up supported by hedge fund buying but the recession and sub prime forced selling for liquidation now that this has subsided uranium should move upward. The consensus is now that nuclear power plants are much safer due to changes in technolgy preventing meltdown and safer way to dispose of waste. Cos like Arva and Cameco should see significant improvement as the demand for more nuclear plants is on the horizon. please comment. Do you agree/ disagree and what can you add? Allso there are three urnanium ETFs which do you like and why/ (NLR), (NUCL), (PKN). thanks Joe Colell ; jpc@strategic-assets.com