5 Disturbed Component Makers: Compelling Buys, Or Value Traps? – Intel Corporation (INTC)

The gross margin for the past quarter decreased to 39% from 46% in the fourth quarter of 2011, when the company still had operating profit of $138 million, or 19 cents per share, out of $1.69 billion sales. First quarter revenue is forecasted to be in the range of $1.02 billion to $1.09 billion, a 6% to 12% decline from the previous quarter, according to
Bloomberg. AMD has struggled as sales of PC processors continued to decline, bringing its cash reserves and equivalents down to $549 million from $776 million.

In order to preserve cash by reducing expenses, AMD reduced orders from its supplier Globalfoundries last month, maintaining reserves including cash equivalents plus marketable securities at $1.2 billion by the end of 2012. Newly appointed CFO Devinder Kumar predicts that the company would be back to generating cash from operations by the second half of this year.

After serving the company for almost four decades,

Intel’s president and CEO Paul Otellini said he would resign as of May 2013. For the last eight years Mr. Otellini was Intel’s CEO.

Intel recovered from a 42% drop in earnings in 2006 Under Otellini’s leadership. Since 2010 Otellini achieved record sales and profit for Intel, largely by taking market share from AMD.

Otellini could have remained Intel’s CEO until May 2016 when he would have hit the firm’s mandatory retirement age. His decision to retire could have been based on market-surprising problems that either he or the board did not want him to manage, though it is also possible that he simply just wants to retire.

Supplying Apple Isn’t Easy

Apple is weighing replacing Intel processors in its Mac computers with the kinds of chips that it uses in its iPad and iPhone devices. This could make it easier for engineers to develop similar features for iPhones, iPads, and Macs. In the past several years, Apple has integrated ARM Holdings technology into its iPhone and iPad. ARM licenses chip designs and technology to various phone chip companies.

Jabil is an Apple component supplier. iPhone 5 supply constraints might delay payback from Jabil’s investment in facilities that help the manufacturer make components which could readily meet the high standards Apple demands for every component. This does a number on a supplier’s margins. Apple’s tough requirements for high quality iPhone 5 casings may be increasing costs.

Intel, Apple, and Jabil are buy candidates for long-term investors. Jabil and Apple shareholders could benefit from it sales growth from mobile device growth. Intel’s future is less clear, though it is trading at low enough valuations to make it an interesting buy candidate. Investors should avoid Texas Instruments and AMD at this time.

The article 5 Disturbed Component Makers: Compelling Buys, Or Value Traps? originally appeared on Fool.com and is written by Bill Edson.

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