Intel Corporation: INTC Stock Is Even More Insecure Now

Advertisement

According to a report from the Financial TimesIntel Corporation (INTC) is exploring the idea of selling off its cybersecurity division. The stock is off about 2.5% to $30.75, in early trading. Although some of this drop off is likely a consequence of the Brexit (Intel stock is off roughly 7% since last Thursday), what might the longer-term impact of the sale be?

Intel Corporation: INTC Stock Is Even More Insecure Now

Would it be good or bad for Intel stock?

The company’s foray into cybersecurity came in February 2011, when INTC agreed to shell out about $7.7 billion in cash for McAfee. It seemed like a good deal … at the time. According to the press release, INTC boasted: “Together the two companies will work to help people more securely take full advantage of the potential of computing and connectivity.”

What’s the Deal With INTC Stock?

But there was a major problem: Much of the business for McAfee was in selling antivirus software. Unfortunately, it had essentially become a commodity as low-cost providers began to eat away at the market share.

Besides, Intel stock may have benefited more had the company instead used the $7.7 billion to invest in the fast-growing mobile market. Let’s face it, there were already strong signs in 2011 that this category would continue to grow at a rapid clip, driven by Apple Inc.’s (AAPL) iPhone and Alphabet Inc’s (GOOG, GOOGL) Android platform.

INTC did attempt to transition the business to higher-margin areas, especially with enterprise cybersecurity, and growth has remained fairly decent over the years. In the latest quarter, the cybersecurity division saw revenues increase 12% to $537 million.

Yet the timing for the sale of this business does seem a bit odd. After all, the industry has suffered a drop in valuations … just take a look at the following chart:

Company Year-To-Date Return
FireEye Inc (FEYE) -28%
Rapid7 Inc (RPD) -18%
Palo Alto Networks Inc (PANW) -34%
Juniper Networks, Inc. (JNPR) -22%

In other words, INTC may not necessarily get much of a premium on a deal.

Bottom Line On Intel Stock

INTC stock still has some attractions. For example, the dividend is at a respectable 3.3% and the forward price-to-earnings ratio is at a reasonable 12X.

INTC also recently announced a major restructuring, as it plans to cut the worldwide workforce by 11% or 12,000 jobs (this should take until mid-2017). There will also be increased investments in new markets like the Internet-of-Things, cloud computing, virtual reality and machine learning.

But then again, if INTC was unable to make a dint in the mobile market, why will the company have success in other areas outside its core PC market focus? It does seem like a legitimate risk for investors in INTC stock.

Something else that should be worrisome: It looks like mega tech operators like AAPL, Facebook Inc (FB) and Google are investing in their own chips. And yes, this makes a lot of sense as these companies need low-cost systems to  process efficiently the huge volumes of data, especially given the growth in areas like video and artificial intelligence.

For example, Google recently announced its Tensor chip, which has been powering its mapping.

This doesn’t mean that Intel stock will collapse; the company has been able to weather the inexorable slowdown in PCs. But for the upcoming few years, things could get even tougher. So, in the meantime, it might be best just to stay on the sidelines with INTC stock.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

More From InvestorPlace

Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2016/06/intel-stock-intc-insecure/.

©2024 InvestorPlace Media, LLC