This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Why Investors Should Be Eying Intel

NEW YORK ( TheStreet) - Intel (INTC - Get Report) may have lowered its full-year guidance when it announced its second-quarter results on Tuesday, but strong gross margins and competitive strength shouldn't be ignored.

The tech giant's shares were climbing nearly 3.5% to $26.26 on Wednesday as investors digested Intel's comfortable earnings beat and its 63.4% gross margin, which came in above the midpoint of its guidance.

Despite acknowledging a challenging macroeconomic environment, the Dow component expects gross margins to remain healthy. The Santa Clara, Calif.-based company predicted a third-quarter gross margin between 61% and 65%, and offered a full-year margin range of 62% and 66%.

"Bears have long argued that Intel's capex in next-gen capacity and a weak PC market would eventually crater gross margins," noted Bank of America Merrill Lynch analyst Vivek Arya, in a note. "However, 11 quarters and 2 chip manufacturing generations later, we see consistent gross margin execution within the company's 60% to 65% target band."

Arya has a buy rating and $34 price target for Intel.

Speaking during the company's second-quarter conference call, CEO Paul Otellini cited Intel's ability to ramp up manufacturing of its new 22-nanomenter Ivy Bridge chips as key to the company's improving margins.

"As we move into Q3, we now have the phenomenon where cost comes down rapidly on Ivy Bridge," he said, in response to an analysts' question. Intel, he added, expects to reduce its Ivy Bridge costs while doubling chip production volume compared to the second quarter.

The fact that Intel both designs and manufactures its own chips is hugely beneficial to the company's margins. Rival AMD (AMD - Get Report), for example, which outsources its manufacturing, reported a non-GAAP gross margin of 46% during its first-quarter results earlier this year.

AMD, which slashed its second-quarter guidance earlier this month, expects its gross margin to be flat to slightly up in sequentially, when it reports after market close on Thursday.

Excluding items, Intel's gross margin was 64.4% during its second quarter.

Despite a fickle economy and increasing competition from design rival ARM Holdings (ARMH), Intel also enjoyed growth in its key PC and data center businesses during the second quarter, highlighting the firm's ongoing competitive strength.

Intel's Data Center Group, which provides chips for servers, saw its revenue climb 14% sequentially to $2.8 billion, while its PC Client Group revenue grew 3% to $8.7 billion.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
ARMH $53.61 0.00%
AMD $2.30 0.00%
INTC $32.08 0.00%
MSFT $47.87 0.00%
AAPL $130.28 0.00%

Markets

DOW 18,080.14 +21.45 0.12%
S&P 500 2,117.69 +4.76 0.23%
NASDAQ 5,092.0850 +36.0220 0.71%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs