Please ensure Javascript is enabled for purposes of website accessibility

Intel Stock Underperforms Semiconductor Peers in 2016

By Ashraf Eassa - Dec 16, 2016 at 5:21PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Intel's share price barely budged this year while those of its two largest peers -- TSMC and Qualcomm -- surged. What do things look like going forward?

Microprocessor giant Intel (INTC 1.59%) had a great year in 2014. Its data-center business surged by more than 18% year over year, and its personal computer revenue grew in what was expected to be yet another down year for the beleaguered personal computer market.

Things just generally went well for the chipmaker, which allowed the company's stock to rise from just under $26 per share to just over $36 per share -- about a 40% gain.

Since then, though, Intel stock hasn't done all that well. It dropped over the course of 2015 from just over $36 per share to about $34.45 per share. Year to date in 2016, with the year almost over, Intel shares are up nearly 7%, which isn't terrible in absolute terms -- a gain is a gain, after all.

However, compared with, arguably, its two most important peers in the semiconductor industry – wireless chipmaker Qualcomm (QCOM 2.29%) and contract chip manufacturer Taiwan Semiconductor Manufacturing Company (TSM 3.78%) -- Intel has dramatically underperformed.

Qualcomm's up just under 39% year to date, enjoying a healthy recovery after a dismal 2015, and TSMC is up 33.45% year to date after experiencing a roughly flat 2015 in terms of stock price.

Image source: Intel. 

Taking a longer-term view

Looking at a single year's performance in isolation doesn't tell investors the whole story. After all, if a stock dropped 75% in one year and then rose by 100% the following year, investors who had to suffer that 75% drop are still down 50% compared to where they were before that precipitous plunge.

That's why it's important to look at how a stock has performed over a longer period relative to its peers. So how does Intel's share price performance stack up to Qualcomm's and TSMC's since the beginning of 2013?

Stock

Start Price (1/2/13)

End Price (12/13/16)

% Difference

Intel

$21.38

$36.80

72.1

Qualcomm

$64.75

$69.34

7.08

TSMC

$18.10

$30.36

67.73

Taking this longer-term view puts Intel in a far better light compared with Qualcomm and TSMC than this year's results do. If an investor had picked one of these three large-cap chip companies to invest her or his money into at the start of 2013, the highest share price appreciation would have come from Intel, followed by TSMC. Qualcomm would have been, by far, the worst performer of the bunch over that time frame.

Peering at the underlying fundamentals

Although stock prices are what ultimately matter at the end of the day, it's also important to look at the fundamental revenue and profit performances of each company over that period.

Since the beginning of 2013, TSMC's trailing-12-month revenue has grown by 50.54%. Qualcomm and Intel, on the other hand, have seen sub-10% growth over that time.

Image source: YCharts.

In terms of operating profit growth, TSMC once again has far outperformed its peers, growing at 64.4% over that time, versus declines for both Intel and Qualcomm:

Image source: YCharts.

Intel's 5.24% operating income decline represents the worst performance of the bunch, followed by Qualcomm's 1.29% decline in operating profit. Both companies saw operating profit decline even as revenues grew, suggesting that both suffered operating margin contraction. TSMC's operating-profit growth has been very robust over that time, up by 64.4% and outpacing revenue growth, meaning that operating margin expanded. 

Looking ahead

As far as stock price performance goes, Intel underperformed in 2016, but has done reasonably well over a three-year time horizon. In terms of the underlying financial fundamentals, Intel's revenue is up, but nowhere near as much as the stock price is. Operating income is actually down a smidgen. 

This fundamental performance is reflective of the fact that the personal computer market -- to which Intel is heavily exposed -- has declined, offsetting the growth that the company has enjoyed in other areas (such as in its data center group and Internet of Things group). It has also boosted its operating expenses to invest in those future opportunities beyond the personal computer market. 

Intel is doing what it needs to in order to secure its long-term future, but investments take time, which dents near-term profitability.

If the investments that Intel is making ultimately prove successful, we should see both an acceleration in revenue growth as well as growth in operating profit that starts to outpace revenue growth. I think, though, that investors are going to need to be patient, as it might still be a couple of more years before that potential fundamental financial outperformance might happen -- if it happens at all. 

Ashraf Eassa owns shares of Intel and Qualcomm. The Motley Fool owns shares of and recommends Qualcomm. The Motley Fool recommends Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Intel Corporation Stock Quote
Intel Corporation
INTC
$35.07 (1.59%) $0.55
QUALCOMM Incorporated Stock Quote
QUALCOMM Incorporated
QCOM
$145.77 (2.29%) $3.26
Taiwan Semiconductor Manufacturing Company Limited Stock Quote
Taiwan Semiconductor Manufacturing Company Limited
TSM
$88.43 (3.78%) $3.22

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
373%
 
S&P 500 Returns
122%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/10/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.