Tags: Intel | pressure | products | INTC

Intel Under Pressure to Prove Value with Cutting-edge Products

By    |   Friday, 03 August 2012 10:30 AM

Intel (INTC) does far more than sell chips for PCs and laptops, but its bread and butter, the personal computing industry, is under attack from all angles as people become less dependent on traditional desktop systems and instead use mobile phones and small tablet computers to keep up with their digital lives. Cost is a factor, too, and that puts pressure on a top-end chipmaker such as Intel to prove the value of its cutting-edge products.

Intel designs and manufactures advanced integrated digital technology platforms. A platform consists of a microprocessor and chipset and may be enhanced by additional hardware, software, and services. Intel sells these platforms primarily to original equipment manufacturers (OEMs), original design manufacturers (ODMs), and industrial and communications equipment manufacturers in the computing and communications industries.

Intel platforms are used in a wide range of applications, such as PCs (including lightweight Ultrabook systems), data centers, tablets, smartphones, automobiles, automated factory systems, and medical devices. The company also develops and sells software and services primarily focused on security and technology integration.

“Ultrabooks continued to build momentum, and achieved our volume goals for the first half. We are very pleased with the level of innovation and invention being brought into this category, and are now tracking over 140 Ivy Bridge-base designed in the pipeline. Of those, more than 40 will be touch enabled and a dozen will be convertibles,” Intel President and CEO Paul Otellini recently told analysts.

“With visibility into this many designs, we are very confident that we’ll see $699 systems at retail this fall. We are also tracking more than 20 Windows 8 Tablet designs based on our low-power and low-cost Clover Trail Atom SoC, in addition to a number of core-based tablets.”

Intel has a market cap of $130.45 billion in a sector, semiconductors, where the average company size is $7.71 billion. Its trailing 12-month P/E ratio is 10.98 and its five-year projected price-to-earnings-growth (PEG) ratio is 0.93, compared to 1.97 for the sector.

Its projected earnings per share growth for the coming year is 7.11 percent, compared to a sector average of 20.22 percent.

Slowing growth

Analysts are mixed on INTC, with buy or outperform calls from Deutsche Bank, JMP Securities, Merrill Lynch, RBC Capital Markets, Smith Barney, and Stifel Nicolaus. Morgan Stanley and Zacks Investment Research have Intel rated underperform.

“Our hold opinion reflects our expectation that Intel's shares will perform in line with the overall market. While the company's new product introductions and process technology transitions remain strong, the PC growth that benefited the company in 2011 is slowing. Furthermore, Intel's recent lowering of its growth outlook still leaves some risk to fourth quarter estimates if new product traction fails to materialize,” wrote S&P analysts in mid-July.

“Given its significant increases in capital and operating expenditures in 2012 despite slowing growth, we see limited leverage in operating or gross margins and, thus, limited upside to earnings.”

Intel next reports on Oct. 16.

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Friday, 03 August 2012 10:30 AM
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