NEW YORK (TheStreet) -- Intel (INTC - Get Report) was falling -1.2% to $26.10 Monday following a report that chip prices are causing companies such as Google (GOOG) and Facebook (FB) to explore other options for their servers.
According to The Wall Street Journal, the average price for Intel's server chips grew to $629 in the first quarter, compared to $429 in the same quarter of 2007, a 47% increase. Other chips tend to fall in price over time, such as Intel's mobile computer chips falling 33% to $88 in the same period. Intel told the Journal, however, that it hasn't raised prices for server chips, but that companies prefer higher-end models.
Intel chips currently account for 97% chips used in most popular servers, giving companies that run those servers little leverage in pricing talks.
Some companies such as Google and Facebook are currently exploring other options for server chips as a result of the current situation.
TheStreet Ratings team rates INTEL CORP as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:
"We rate INTEL CORP (INTC) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels, expanding profit margins and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Despite its growing revenue, the company underperformed as compared with the industry average of 3.3%. Since the same quarter one year prior, revenues slightly increased by 1.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- INTC's debt-to-equity ratio is very low at 0.23 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, INTC has a quick ratio of 1.68, which demonstrates the ability of the company to cover short-term liquidity needs.
- The gross profit margin for INTEL CORP is currently very high, coming in at 74.80%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 15.12% trails the industry average.
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- You can view the full analysis from the report here: INTC Ratings Report