Yesterday, Intel (NASDAQ:INTC) posted a decent quarter, with profits coming to $2.74 billion, or 53 cents per share. But revenues were flat at $12.9 billion. The stock price was off by 2%, to $27.93, on the news.
Yet for the year, Intel has been good for shareholders: The return is about 18.27%. In fact, the shares gained 19% in 2011.
So should you buy Intel stock? To decide, let’s take a look at the pros and cons:
Scale. Intel has an extensive global footprint, which is a huge barrier to entry. The company also should continue to reap hefty cash flows from its core PC processor business.
Dealmaking. With a huge cash hoard, Intel has been getting more aggressive with acquisitions. One smart deal was for McAfee, a top provider of security solutions. This business has a strong growth profile and high margins.
Going forward, Intel is likely to make other deals. One attractive area that is also showing lots of strength is cloud computing.
New Chips. Intel has a solid pipeline. One example: For the first time, the company is expected to have one of its chips in a smartphone soon. (The handset manufacturer has not been disclosed.)
Intel also has some promising PC chips that will launch soon, as well as ones for ultrabooks. These should help put pressure on Apple’s (NASDAQ:AAPL) popular Macbook Air offerings.
Tablets and Smartphones. These are serious threats to Intel. It looks as though tablets are starting to eat away market share from traditional PCs. Unfortunately, Intel has been slow to enter this high-growth market.
This has also been the case with smartphones. Interestingly enough, Microsoft (NASDAQ:MSFT) has agreed to use non-Intel chips for its new Windows software, which will have touchscreen features.
Europe and Asia. Even though the bailouts seem to be working, growth remains meager in Europe. And this has been a drag on sales for Intel, with few signs that things will improve.
At the same time, China is also showing signs of a slowdown (which may be tied to Europe). This could be another problem for Intel.
Gross Margins. Intel said they will be 62% for the second quarter, while Wall Street had an estimate of 63.5%.
The main reason is that Intel is spending larger amounts to upgrade its fabs and build new ones. So expect lower profits, at least in the short run.
While Intel has made some smart moves — such as the deal for McAfee — there will be little growth for the PC markets as tablets continue to siphon off market share. There will also be headwinds in Europe and even China. And yes, it looks as though Intel will have a tough time getting traction in the fast-growing mobile market.
Besides, Intel’s shares have already had a big run-up this year.
So should you buy Intel? No — for now, its cons outweigh the pros.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook”, “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.