The semiconductor industry has experienced shortages and rapid increases in demand amid the explosion of new tech applications. However, one chip company that continues to struggle is industry pioneer Intel (INTC -2.15%).
While it led the industry for decades, other chip designers and manufacturers eclipsed it due to its development struggles. Current CEO Pat Gelsinger seeks to get Intel back on top with initiatives to retake the technical lead and invest heavily in new foundries. While it is too early to know if or how well Gelsinger will succeed, patient investors may want to consider the semiconductor stock for three reasons.
1. It still generates massive revenues
Despite the focus on the likes of Nvidia and AMD, Intel remains an industry behemoth. While it has lost its designation as the "world's largest chipmaker," it still outproduces most of its peers.
In the first six months of 2022, Intel generated just under $34 billion in revenue, a figure that declined 14% versus the same period in 2021.
In comparison, AMD reported just over $12 billion in revenue. Though Nvidia's fiscal second quarter ends one month after Intel's, it generated $15 billion in the first half of its fiscal year. Taiwan Semiconductor, which manufactures more than half of the world's semiconductors according to TrendForce, has just now eclipsed Intel with $36 billion in revenue over the same time frame.
Moreover, sub-sectors like PCs have seen sales drop amid a slowing economy, a factor that will probably make its drop in revenue temporary. Intel's pivot into the foundry business could also serve as a revenue driver once it builds its proposed foundries in the U.S. and Europe. For these reasons, it will likely remain a major industry player.
2. Intel's dividend
Another effect of the declining stock price is the increasing appeal of its payout. Currently, it pays shareholders $1.46 per share annually. That has taken its cash yield to 5.5%, the highest in its history.
Intel compares favorably to the S&P 500, which offers a dividend yield of around 1.8%. It also stands favorably against some of the highest dividend payers in the tech industry, such as Dividend Aristocrat IBM, which also offers a cash return of 5.5%.
Moreover, Intel has embraced its existence as a dividend payer. Despite its challenges, the payout has increased consistently since 2004. While that falls well short of the 25 years required to claim Dividend Aristocrat status, it is a long enough track record to negatively affect the stock price if the streak of payout hikes ends.
3. The low valuation
Additionally, Intel has fallen to what looks like an outlandishly low earnings multiple. It now sells at a price-to-earnings ratio of under six. This makes it a lower-cost stock compared with its major peers.
But despite that earnings multiple, no metric arguably describes Intel's situation better than its price-to-book value ratio. Currently, the stock sells at under 1.1 times the book value, a historic low.
Admittedly, the revenue declines and struggles to catch up to its peers have rightly put off investors. Still, at some point, valuation matters, and its book value may make Intel too inexpensive to ignore.
Making sense of Intel
Without a doubt, Intel is a troubled company. While it is investing heavily to become a player in the foundry business and regain its technical lead, it remains unknown whether it will succeed in either endeavor.
However, its current revenue levels still make it a major industry player. Since investors can earn a considerable dividend return and buy Intel near its book value, they may have a once-in-a-generation buying opportunity.