This is Not the Intel Stock You Remember From Yesteryear

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Giving credit where it’s due, Intel Corporation (INTC) was so transparent and forthcoming before (and even during) the event, there was no re-pricing of INTC left to do in the wake of Wednesday evening’s earnings report.

In fact, one could even say yesterday’s Intel earnings news was successfully boring. Volume was mild for a post-earnings session, and though Intel stock fell slightly into the red, the response to the news was ho-hum, at best.

And yet, there was plenty of good data packed into the Intel earnings report long-term investors should care about.

Namely, owners of Intel stock can take comfort in the fact that Intel is successfully scaling back its reliance on a drying-up PC market, and is successfully wading into other arenas that offer real growth opportunities.

Intel Earnings, By the Numbers

It was a good news/bad news situation for Intel last quarter.

The good news is, the chipmaker earned 55 cents per share on $13.2 billion in revenue, but analysts were only collectively looking for a profit of 50 cents per share of Netflix stock on a top line of only $13.04 billion.

The bad news is, profits fell 3.2%, and sales fell 4.6%, on a year-over-year basis.

Better numbers may be right around the corner, however. Intel is looking for revenue of $14.3 billion for the current quarter, versus analysts estimates of only $14.08 billion.

The upswing is expected to be driven more by forward progress in its non-PC business rather than any surge in demand for personal computers. However, the company is still developing technologies that could reignite PC-driven profitability in 2017.

Meet the New and (Maybe) Improved INTC

To fully appreciate where Intel stock is going, one has to dig deeper into the Intel earnings report. This is a company that’s in transition, and though the shift does involve growing pains, it’s a transition towards better profitability.

In simplest terms, Intel is scaling back on its PC-related business, and taking on more non-PC-related ventures like data centers, the Internet of Things, and software & services. It’s even got a small stake in the NAND market that grew considerably last quarter.

The two then/now charts below efficiently tell the story of the transition that’s underway over the course of the past two years. More than that, though, they underscore the waning importance and impact of PCs, and illustrate the growing importance of the company’s other efforts.

Intel stock revenue comparison
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Intel stock earnings comparison
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It’s not a perfect apples-to-apples comparison. The Internet of Things business now falls into the “other architecture” segment, but some of that work may have simply been in “other” back in 2012. Similarly, the current “other” includes a NAND venture that didn’t exist to any significant degree in 2012.

The bigger point is still clear, however: PCs mean less and less, and everything else means more and more.

That’s how it should be. The tough part for those who are patiently holding Intel stock is that, despite all the transitory efforts, PCs are still a huge part of Intel’s business.

Bottom Line for Intel Stock

Canaccord Genuity analyst Matthew Ramsay may have summed it up best by simply responding with “Whew!” in regards to the Intel earnings news, suggesting investors knew it wasn’t going to be a great quarter, but were hopeful things wouldn’t be horrifying.

Be that as it may, it should be at least a bit concerning for Intel stock investors that Intel is backing off on its plans to lead the charge into the next generation of computer chips.

The current standard for semiconductors is 14 nanometer technology, referring to the minimum size that a chip can be mechanically manufactured. Chipmakers like Intel, Samsung (SSNLF), and Taiwan Semiconductor Mfg. (TSM) have been working on 10 nanometer technology.

Intel was supposed to leading that charge by launching the world’s first mass-produced 10 nanometer semiconductors in 2016, but the company announced the launch date has been pushed back to 2017. As such, Samsung and TS Taiwan Semiconductor may well beat Intel to the punch.

The delay may have been associated with the decision to cut its capital expenditure budget for 2015 by $1 billion.

Investors and analysts mostly cheered the money-saving decision, but it’s worth wondering whether this short-term move will untimely work against Intel stock in the long run. Much of Intel’s success has been founded on the fact that it’s leading the industry’s advances. If it loses that reputation, it could also lose more PC business.

Then again, if the company’s overhauling its product mix anyway, it’s a decision that may prove wise in the end. Just don’t look for yesteryear’s smashing growth from Intel’s new priorities.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/07/not-intel-stock-remember-yesteryear/.

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