Despite the Shellacking, I’m Not Selling Intel Corporation (INTC)

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Intel (INTC)'s Coming Battle for Mobile Market ShareInvestors of Intel Corporation (NASDAQ:INTC) stock got a rude wake-up call the morning of Friday, Jan. 18, when they saw the company’s shares open down 6% in the wake of its disappointing fourth quarter results.  Before the ink was dry on the earnings report, a cascade of panic rained down from the media.  Calls for Intel’s imminent demise filled the airwaves.  In times like these, it’s worth noting that the stock market can be extremely fickle, and it’s my opinion that the sell-off in Intel shares was overdone.

Indeed, Intel’s fourth-quarter results were poor.  There’s no sugarcoating the fact that earnings for the quarter dropped 27% year over year.  Revenues fell 3% versus the prior year’s fourth quarter, and the company expects another 6% decline in revenues for the current quarter.  For the full-year, revenues and earnings per share dropped 1.2% and 11%, respectively.  To add to investors’ misery, the market got spooked about Intel’s plan to spend $13 billion on capital expenditures next year.  Gross margins are heavily scrutinized for a semiconductor company such as Intel, and the market wasn’t pleased to see margin contraction of almost seven percentage points from last year’s fourth quarter.

The All-But Certain Death of the Personal Computer

The financial media has essentially made up its mind that the PC is officially dead, and that investors would be better served buying stock in QUALCOMM, Inc. (NASDAQ:QCOM) or Broadcom Corporation (NASDAQ:BRCM).  The investing thesis here is that Intel has fallen too far behind the trend away from desktop and laptop computers.  The future is clearly mobile, as the argument goes, and fellow semiconductor companies Qualcomm and Broadcom are poised to be the industry leaders in smart phone chip design.

I’m no technology expert, nor will I ever claim to be one.  I can’t possibly say for certain whether the PC is indeed dead.  My best guess is that it’s not. That being said, I won’t persuade investors to shy away from Qualcomm or Broadcom.  Those companies have a lot going for them financially.  Qualcomm is a $109 billion behemoth that has seen its share price rise more than 17% since the beginning of 2012.  Qualcomm has raised its dividend by more than 12% compounded annually over the last five years.  Furthermore, in its 2012 annual report, the company announced revenues and diluted earnings per share increased by 27% and 39%, respectively.

With respect to Broadcom, net revenues increased by more than 8% for the company in its fiscal quarter ended Sept. 30, 2012, and almost 6.5% during the first nine months of the year.  Diluted net income per share dropped, however, to $0.82 from $1.19 during the previous year’s first three quarters.  Management attributed the drop in profitability to lower gross margins as a result of higher research and development expenses.  The company did raise its dividend more than 11% during 2012, although even with the increase the stock only yields barely more than 1% at current prices.

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