Balance Sheet Analysis on Intel Stock: 3 Highlights You Can't Afford to Miss

Source: Intel.

Semiconductor giant Intel (INTC -0.38%) helped revolutionize the technology industry, with its microprocessor making up the backbone of the PC for decades. Even with the rise of mobile devices, Intel has still done a good job of squeezing as much profit as possible from the PC industry, and the company has done well to find new applications for older technology in the data-storage realm, as well as in emerging markets throughout the world. Along the way, Intel has sustained its financial strength effectively, and its balance sheet remains in good shape.

Yet as the tech industry has evolved, Intel has had to evolve along with it -- and the tech giant has also taken advantage of current capital-market conditions to improve its financial results. As a result, Intel's balance sheet looks a lot different than it did just a few years ago. Let's take a close look at three highlights on Intel's balance sheet that are particularly noteworthy in understanding what the company is doing right now.

Stats on Intel

Source: S&P Capital IQ.

1. Intel doesn't have the cash hoard that many of its peers have.
Perhaps the most distinctive element of Intel's balance sheet is that it doesn't have the same backlog of cash and short-term investments that many of its similarly sized large technology peers have. When you look at Apple (AAPL 0.64%), Microsoft (MSFT 1.65%), and Cisco Systems (CSCO 0.37%), you'll see much larger balances of cash and short-term investments available -- and that even leaves out much of Apple's nine-figure resources, much of which qualifies as long-term investments on Apple's balance sheet.

INTC Cash and Short Term Investments (Annual) data by YCharts

One reason why Intel doesn't have as much cash as its peers is that it has a longer track record of paying dividends than most tech companies. Even now, Intel's 2.7% dividend yield is greater than Apple's and similar to Microsoft's, and that incorporates Intel's recent share-price surge. Moreover, consistent growth in the value of its plant and equipment assets shows how Intel is reinvesting in its own growth, and that makes its balance sheet look a lot more normal than the cash-rich balance sheets of several other tech companies.

2. Intel has committed substantial capital to long-term investments.

Along the same lines, Intel hasn't hesitated to put cash into long-term investments. As of the third quarter of 2014, Intel had a total of $12.1 billion listed as long-term investments, and $9.2 billion considered trading asset securities.

For some companies, long-term investments would largely consistent of bonds and other income-producing securities held mostly as placeholders for cash. Indeed, Intel had roughly $16.9 billion in marketable debt securities at the end of the third quarter, some of which likely qualified as short-term investments and others as long-term. But Intel also holds a substantial portion of its money in equity securities, with $6.5 billion in marketable equities and equity derivatives as of the third quarter. Almost that entire amount was invested in ASML Holding (ASML 3.38%), but Intel has also made other equity investments in the past, such as the stake in Clearwire that it divested last year.

Long-term investments have better growth potential that in some cases can make measurable differences on a balance sheet. They also carry greater risk than other types of assets, but in some cases, that trade-off can be favorable for the company -- and Intel hopes that its expertise in identifying promising new tech companies can be an asset.

3. Intel has taken on greater leverage.

Just as many companies have done lately, Intel has increased its borrowing in recent years. After having just $1.2 billion in long-term debt in 2008, Intel has systematically ramped up its leverage levels and now sports $13.2 billion, including the current portion of its long-term debt. As you can see below, the increase is noticeable, although Intel is far from the largest user of leverage in the industry.

INTC Total Long Term Debt (Annual) data by YCharts

Much of that debt has helped Intel finance massive repurchases of stock, with the most obvious example being its buyback activity going from $1.7 billion in 2010 to $14.3 billion in 2011. Given the low interest rates and its relatively high dividend yield, Intel has been able to make cash-flow positive moves simply by retiring dividend-paying stock in favor of taking on interest obligations.

Going forward, danger will only arise if financing rates rise. At that point, Intel will need to have the cash on hand to pay down its debt if it wants to avoid higher interest costs in the future.

Intel looks strong on balance
Skeptics worry that Intel's recent improvement is a one-time effect from a temporary increase in PC demand that will quickly flare out. But strategically, Intel has put initiatives in place to drive growth and stability for years to come, and right now, Intel has the foundation it needs to build a solid future.