The biggest maker of computer chips in the world, this stock found itself facing adversity when a security flaw was detected.
While it was just one of many firms responsible for correcting the problem, its shares fell sharply in January. However, following the announcement of record-breaking revenue and a dividend hike, the company’s stock has now rebounded.
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INTEL CORP. (Nasdaq symbol INTC; www.intel.com) is the world’s leading maker of computer chips: its products power 80% of all personal computers.
Last week, the company surprised many observers with a fourth-quarter report that featured record-breaking revenue. The good news came after Intel stock fell in the wake of a security problem with its and others computer chips.
For the three months ended December 31, 2017, the company announced record fourth-quarter revenue of $17.1 billion, a 4.1% increase from $16.4 billion a year earlier. That also beat the consensus estimate.
Due to corporate tax reform enacted by the U.S. Congress in December, Intel reported a one-time income tax expense of $5.4 billion to repatriate cash and other profits held by its foreign subsidiaries. As a result, Intel lost $687.0 million, or $0.15 a share, in the quarter. A year earlier, it earned $3.6 billion, or $0.74 a share. If you exclude all unusual items, earnings per share jumped 36.7%, to $1.08 from $0.79.
Intel ended the quarter with cash and investments of $17.0 billion, or $2.76 a share. Its long-term debt of $25.0 billion is a low 14% of its market cap.
The company spent $5.1 billion on research spending in the fourth quarter. That’s down 3% than $5.4 billion a year earlier.
Starting with the March 1, 2018 payment, Intel will increase its dividend by 10.1%. Shareholders will then receive $1.20 a share annually. The dividend currently yields 2.4%.
The stock rose 4% following Intel’s consensus-beating report last week.
Value Stocks: Intel working with other firms to solve security flaw in chips
The shares had been down since the beginning of the year after the discovery of a design flaw in its computer chips that could make it easier for online intruders to access sensitive data, including passwords. Software patches help fix those types of flaws. However, they can also slow the performance of computer chips by up to 30%.
Intel claims the security flaw affects many devices—not just its chips. However, the concerns still have the potential to dampen demand for the company’s products, particularly from businesses and data centre operators.
The situation has also made Intel the target of new class-action lawsuits. In 1994, it paid $475 million to settle charges related to a bug in its Pentium chips. It also paid $700 million to settle a similar lawsuit in 2011. However, those charges were small in relation to Intel’s market cap (the total value of all outstanding shares) of $202.2 billion.
The company is now working with other chipmakers and software firms to eliminate the flaw in future chips. Those new chips could also spur users to upgrade their computers faster than they normally would.
At the same time, Intel has diversified into other types of chips to cut its reliance on cyclical demand for personal computers. The company completed its acquisition of Mobileye N.V. for $15.3 billion during the third quarter of 2017. Based in Israel, Mobileye specializes in computer systems and chips for self-driving cars. Over 25 automakers currently use, or have agreed to use, its technology. Intel expects global demand for vehicle systems and data services could rise to $70 billion by 2030.
In late 2015, it paid $16.7 billion for Altera Corp., a maker of chips called field programmable gate arrays (FPGAs). Users can program them to perform specific tasks, which makes server computers faster. Intel predicts FPGA chips will run 30% of the world’s datacentre servers by 2020 as more businesses shift to cloud computing.
Intel will probably earn $3.30 a share in 2018. The stock trades at a just 15.2 times that forecast.
Recommendation in TSI Dividend Advisor: Intel is a buy.
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