Intel Corp.

Written by Ophir Gottlieb, 6-11-2015

Intel is the long forgotten mega cap. Rattle off the names in your vernacular in this field and you'll likely start with Apple, Google, Facebook and Microsoft and then end somewhere near Oracle, Qualcomm and maybe even Netflix. Now is the time to remember Intel.

Intel is the world's largest semi-conductor company and has seen revenue, earnings, free cash flow and research & development (R&D) rise over the last year. In fact, INTC spends more on R&D than every other company in North America in any sector (including biotech and Pharma) and it's RISING even relative to increasing revenue. We can see R&D ($ millions) on the y-axis and equal space the x-axis (rank) for mega caps of all sectors, below.


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There's reason for the R&D spending and reason to believe Intel's market opportunity has finally woken up after years of stagnation. The Internet of Things (IoT) opportunity is considerable for semiconductor companies; the segment as a whole is expected to reach hundreds of billions of dollars by 2020.

According to a Zacks Equity Research industry outlook report the "things" segment is estimated to account for 10% of the IoT device value which INTC is participating in (with products like the MICA bracelet). The second and considerably larger part of the IoT opportunity is in cloud computing which allows the data captured from the "things" to be stored and analyzed and ultimately become valuable to industries like retailers and healthcare providers (and marketers). Clouds (computers) are powered by semi-conductors.



INTC is down -2.8% over the last three months and down -13.7% over the last six months. The stock price is up +14.0% over the last year.

Before we dig into the fundamental trends that drive the rating, let's look at a two-year stock chart with regression channel and 10-day momentum (on the bottom). "


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Revenue (TTM) just broke an all-time high, hitting nearly $56 billion and has increased for seven consecutive quarters in a row (anything over five triggers a "trend" in the star rating). The impact of the IoT is just beginning to hit INTC.

What do all these numbers mean?
INTC's fundamental rating benefited these results:
1. The one-year change was positive (but no extra points were given for a large percentage increase).
2. The two-year change was positive.
Finally, the up trend (consecutive quarters) in revenue benefited the fundamental (star) rating.

Here's the chart of revenue TTM in millions of dollars.


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We can quickly see that spike in INTC revenue from 2010 and how it looks relative to Texas Instruments and Micron.



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Net Income (after tax profit) over the trailing twelve months (TTM) for INTC is also rising, and has risen for four consecutive quarters. For the most recent trailing-twelve-months (TTM) the company reported a 14.2% rise from last year.

In our next chart we plot Net Income (TTM US$ Millions) in the blue bars and the quarterly results in the gold line. Note the rising bars from a year ago (four quarters ago).



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The good news keeps on coming when we turn to free cash flow (FCF) over the trailing-twelve-months (TTM). Over the last year INTC has seen FCF rise 35%, and again we see conecutive increases for four quarters. The trend is rather obvious when we look at the visualization, below.



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This is where it gets really interesting. Not only does Intel spend more on R&D than every company in the world, it has now broken its all-time high in terms of R&D spent per dollar of revenue. The company spends nearly $0.25 of every dollar it takes in on R&D. If you're looking for a bullish theme, this is it. The IoT means wonderful opportunity and INTC is digging its heels in to exploit that opportunity.



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Summary
Intel has been forgotten. It's business isn't sexy, it's really not a business to consumer company so retail doesn't have great brand loyalty or recognition for it. But the company's revenue, earnings, free cash flow and R&D are rising and it may very well be at the beginning of a booming cycle for it's business. It's pouring more money into R&D than ever before. Now may be the time to remember Intel.
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