Intel Report Q2 2013

Last night at 22h00 Intel came out with the financial report concerning the second quarter of 2013 and it can be found here. The earnings has jumped down from around $2.8 billion per quarter to around $2 billion which is a significant decrease not only in earnings but of course also in revenue. This is coming from two reasons that they have been beaten by Qualcomm and ARM on the smartphone/iPhone and tablet/iPad market as well as the tablet effect which has decreased the sale of laptops. I do however find it interesting to see that people are now stepping over to desktop computers again and prefer to work with those in comparison to a laptop. Intel will hopefully benefit from this in the future because their microprocessors are superior.

Just the brief summary as it was published by Intel on the link above:

 Q2 Key Financial Information and Business Unit Trends
• PC Client Group revenue of $8.1 billion, up 1.4% sequentially and down 7.5% year-over-
year.
• Data Center Group revenue of $2.7 billion, up 6.1% sequentially and flat year-over-year.
• Other Intel® Architecture Group revenue of $942 million, down 3.7% sequentially and down
15.0% year-over-year.
• Gross margin of 58%, up 2 percentage points sequentially and down 5 percentage points
year-over-year.
• R&D plus MG&A spending of $4.7 billion, in line with the company’s expectation of
approximately $4.7 billion.
• Tax rate of 26%.

Q2 2013
Revenue $12.8 billion
Gross Margin 58.3%
Operating Income $2.7 billion
Net Income $2.00 billion
Earnings Per Share 39 cents

So the earnings and revenue has decreased slightly this year and they are cautious about the earnings for the year. They say that it will remain flat and I doubt that it will remain... most likely it will decrease for the year from the $11 billion last year. It will be interesting to see if their new CEO Brian Krzanich will manage to keep Intel floating for the remainder of the year and start to bring the ship into an even better position in 2014. But please do not misunderstand me... Intel will most likely make around minimum $8 billion profit this year and I see nothing to cry about concerning that profit.

For myself I updated the contrarian analysis of Intel and they have a running P/E of 12.5 (with the stock price at over $24) with a P/B of 2.2 meaning that it is no longer a buy according to Graham they have however increased their book value and decreased their debt. They have also bought back 48 million shares in the last two quarters which I also accounted for so the P/E is still almost half of what the motivated P/E is. They have also decreased their R&D spending with almost 6% in the first half year which either means they found that they spent too much for too little gain OR they have found what they were after since they started their massive R&D push in the end of 2010. Their dividends are still around 3.6% which represents 45% of earnings so it should not be a problem to keep.

Conclusion: Based on this first half year of Intel in 2013 I would no longer buy stocks in the company but I will continue to keep them because it is far from the current running P/E to the motivated P/E value and I am still getting over 4% dividends based on the investment that I once made.