INTEL CORP. $21 (Nasdaq symbol INTC; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 5.0 billion; Market cap: $105.0 billion; Price-to-sales ratio: 1.9; Dividend yield: 4.3%; TSINetwork Rating: Above Average; www.intel.com) is the world’s leading maker of computer chips. Its products power about 80% of the world’s personal computers.

Intel’s revenue fell 8.4%, from $38.4 billion in 2007 to $35.1 billion in 2009. That’s because businesses and consumers put off upgrading their computers during the recession. However, pent-up demand pushed up its revenue by 24.2%, to $43.6 billion, in 2010. In 2011, revenue rose 23.8%, to $54.0 billion.

Strong sales boosted Intel’s profits

Earnings fell 37.4%, from $7.0 billion in 2007 to $4.4 billion in 2009. Earnings per share fell 34.7%, from $1.18 to $0.77, on fewer shares outstanding. Thanks to the higher revenue, earnings jumped to $2.05 a share (or a total of $11.7 billion) in 2010, and to $2.39 a share (or $12.9 billion) in 2011.

However, consumers are increasingly using smartphones and tablet computers to access the Internet. That’s hurting personal computer sales. Intel gets twothirds of its revenue from computer chips, so its revenue will probably slip to $53.5 billion in 2012. As well, its earnings per share will likely dip to $2.11.

Intel now aims to apply its expertise to mobile chips. Unlike regular chips, mobile chips squeeze traditionally separate components— such as video and memory- — onto a single chip. In 2011, Intel’s research spending jumped 27.0%, to $8.4 billion (or 15.5% of its revenue) from $6.6 billion (or 15.1% of revenue) in 2010. Research costs will likely rise 20% in 2012, to $10 billion.

New mobile chips have big potential

These investments should start paying off in 2013, when Intel launches its new mobile chips. It’s possible that Apple Inc. (Nasdaq symbol AAPL) could use them in future versions of its hugely popular iPhone and iPad devices. Switching to Intel would let Apple buy fewer chips from its rival, Samsung, which also makes smartphones and tablets.

Intel can easily afford to maintain its high research spending. As of September 30, 2012, it held cash and short-term investments of $10.5 billion, or $2.10 a share. Its long-term debt of $7.1 billion is just 7% of its market cap.

The company is taking advantage of low interest rates to sell an additional $6.0 billion of new long-term notes. It didn’t say what it will use the cash for, but it will probably put some toward share buybacks: it has $6.3 billion remaining on its current repurchase authorization. The extra cash will also give Intel more room to raise its dividend. The current annual rate of $0.90 a share yields 4.3%.

Outlook is bright for server chips

Intel is highly cyclical, and slower computer sales will probably cut its 2013 earnings to $2.05 a share. The stock trades at just 10.2 times that estimate. However, rising use of mobile devices and cloud computing services should keep spurring demand for chips that power the servers behind Internet search engines and social-networking sites.

Intel is a buy.