Dominant chip maker Intel (Nasdaq: INTC) provides investors with an outstanding company and promising stock to build a portfolio around. Let's take a look at why prospective shareholders should believe in this Silicon Valley staple.
Always moving forward
In an environment as competitive as the $300 billion semiconductor industry, Intel reigns thanks to its forward thinking. Its recent $4.1 billion investment in Dutch lithography equipment maker ASML Holding, a move that could leave the former with up to 15% of the latter's stock, keeps the corporation at the forefront of innovation. ASML's technology for inscribing semiconductor chips will accelerate production techniques by two years.
That's leaping forward by a generation in Silicon Valley timescales. Despite the investment's hefty price tag, Intel's move will help it get a jump on its competition and lead the forefront of further semiconductor miniaturization.
Its 22-nanometer nodes -- about half the width of a virus -- already represent significant miniaturization from 32-nanometer chip nodes standard in the industry, yet Intel wants to keep going smaller. The company has released plans to fabricate 14-nanometer chips in 2013 and develop processes for 5-nanometer chips in the near future, placing computing power on incomprehensibly small sizes. Intel boasts enough technological prowess to blow the socks off a casual investor, yet the company continues to pursue growth in other mediums, as well.
Outstripping the competition
Intel took steps recently to compensate for its late arrival to the mobile market. The company squared off with competitor NVIDIA (Nasdaq: NVDA) in a battle over the new Microsoft (NYSE: MSFT) Surface tablet, which will sport separate models hosting each company's chips. Intel also has expanded its position outside its 80% share of PC chip sales, moving its tablet chips to service smartphones, as well.
These expansions compete directly with industry rivals like NVIDIA and Qualcomm (Nasdaq: QCOM). Both companies jumped on board the smartphone revolution before Intel, reaping the rewards while their bigger and stronger competitor lagged behind. Although the experience these companies have in the smartphone and tablet business could protect their temporary lead over Intel for now, other competitors have already begun to fall courtesy of Intel's moves.
Chip maker AMD (NYSE: AMD) revised its Q2 revenue expectations down 11%, predicted to be in part due to the release of Intel's newest chips. The report puts AMD on shaky ground after a $580 million Q1 loss, giving Intel leverage over its competitor. Intel's rivals will have to work even harder to compete with its plans.
Backing up the prospectus
Intel scores exceptional financial marks across the board. A five-year sales growth rate of 8.9% and a five-year EPS growth rate of 21% show a history of good returns and solid operations.
Sporting long-term debt of $7 billion in its most recent quarter, Intel's long-term debt-to-equity ratio of 15% (compared to an industry average of 30%) gives it the flexibility to invest further funds in researching new technologies or fine-tuning developing products, such as its forays into the mobile sector. Such constant improvement provides the spark needed in the high-stakes world Intel competes in, where customers demand ever-progressing innovations.
Cautious or income investors can take heart in the company's 3.6% dividend yield at a five-year growth rate of 12.7%. Net margins of 23% beat an industry average of 17%, outstripping not only less advantageous rivals but coming in second among Dow Jones members.
Treat yourself to Intel
Investors couldn't do much better than Intel. The company continues to put itself in a position to succeed through establishing a foothold in the smartphone and tablet business while maintaining its PC chip dominance, giving Intel a place in the market and shareholder portfolios no matter where innovation leads.
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