Intel – PE Ratio Below 9; Dividend Yield 4.3% -- Screams Value: Quieter Voice Whispers Danger

On paper, chip maker Intel (INTC) today looks like a value investor’s dream stock; a Dow company sporting devalued shares, with a PE ratio below 9, and a 4.3% dividend yield even while running billions of dollars in quarterly profits. Then again, computer maker Hewlett Packard (HPQ) looked pretty good for similar reasons not too long ago also.

INTC Chart

INTC data by YCharts

HP reached its inglorious position after years of uneven, sometimes comically inept, leadership. Intel has no such checkered past. But like HP, Intel is PC-dependent company struggling to stay relevant in a mobile device world. And while investors once had high expectations that Intel’s inventive genius would let it avoid an HP-like crash, those hopes are fading. In fact, that 25% drop in Intel’s share price over the past six months represents the dawning realization that there’s little inside Intel likely to spark a rebound any time soon.

Intel derives some 85% of its revenues from the PC industry, mainly by selling processors to PC makers like Apple (AAPL) and Dell (DELL). That industry is suffering a quick decline – PC shipments were down more than 8% in the third quarter alone – although the debate over whether this is an impending death rages. Intel cut its third quarter revenue projections by about $1 billion ahead of results in October. Its revenues are down some 5.45% in the past 12 months.

INTC Revenue TTM Chart

INTC Revenue TTM data by YCharts

While Intel is top-dog in the PC chip market, competitors like Qualcomm (QCOM) and ARM Holdings (ARMH) established huge beachheads with smartphone and tablet makers. Intel finally got its first smartphone chips into a handful of Android-based phones overseas this year. You still can’t get one in the U.S.

Meanwhile, some of the pillars supporting Intel so far are looking weak. Apple Macs with their built-in Intel processors actually report sales gains, but that relationship is in jeopardy. Industry experts believe Apple wants to replace those Intel processors with a version of the chip technology it uses in iPads and iPhones. ARM, Qualcomm and Broadcom (BRCM) make Apple’s mobile chips. Microsoft’s (MSFT) Windows 8, the new operating system that might boost sales of PCs with Intel inside, hasn’t been the runaway success Intel needs. Sales of Intel’s own highly-touted Ultrabooks, a light but powerful laptop meant to compete with tablets, also have been disappointing.

Intel CEO Paul Otellini professes undying love for the PC industry, and he recently blamed weak global economies, rather than mobile intrusion, for missing revenue estimates. Investors looking to capitalize on the rampant growth of mobile devices probably will be disappointed by the PC drag at Intel.

Then again, no one else with any hand in mobile technology will pay you a well-covered dividend that grows like this:

INTC Dividend Chart

INTC Dividend data by YCharts

And perhaps that’s quite enough. Intel, with its $100.79 billion market cap, $10.5 billion in cash and short term investments, and $11.9 billion in earnings even in those lousy past 12 months, make for an awful lot of protection against really serious trouble. Just don’t plan on selling those shares any time soon.

Dee Gill is a contributing editor at YCharts, which includes the just-released YCharts Pro Platinum for professional investors.

Read more articles about: Company Analysis  

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