| 2009 | 2011 | 2012 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Company | Rev. ($B) | NI ($B) | NPM | Rev. (B) | NI ($B) | NPM | Rev. ($B) | NI ($B) | NPM |
| Cisco | 36.117 | 6.134 | 16.98% | 43.218 | 6.49 | 15.02% | 46.061 | 8.041 | 17.46% |
| International Business Machines | 95.759 | 13.425 | 14.02% | 106.916 | 15.855 | 14.83% | 104.507 | 16.604 | 15.89% |
| Intel | 35.127 | 4.369 | 12.44% | 53.999 | 12.942 | 23.97% | 53.341 | 11.005 | 20.63% |
For Cisco, the financial year ends in July while for IBM & Intel, it ends in December.
A fundamental perspective of Cisco
Cisco Systems, Inc. (NASDAQ:CSCO) designs, manufactures, and sells Internet Protocol-based networking and other products & services. The products are used for transporting data, voice, and video around the world. For the year ending July 28, 2012, Cisco reported revenue and net income (NI) of $46.06 billion and $8.04 billion, respectively. Compared with 2009, Cisco Systems, Inc. (NASDAQ:CSCO)’s revenue and net income grew 27.5% and 31%, respectively, and compared with 2011, the growth was 6.6% and 23.9%, respectively.
Though the net profit margin (NPM) improved in 2012 over 2009, it has remained nearly flat at around 17%-17.5%. For the quarter ending Jan. 26, 2013, revenue/NI growth was 5% and 44%, respectively, but increase in net income included a $926 million tax settlement. Even if this gain were excluded, the margins have shown slight improvement. Reduced Government & Corporate spending and a lethargic economy impacted the performance. Cisco Systems, Inc. (NASDAQ:CSCO) is trading at 2.33 times sales, and the P/E (TTM) is 11.89 compared to a forward P/E of 9.84. Cash on books is $46.38 billion and the debt-equity ratio is 29.34.
A fundamental perspective of IBM
International Business Machines Corp. (NYSE:IBM) operates through five business segments, Global Technology Services (IT infrastructure and business process services), Global Business Services (Consulting and Application Management Services), Software (middleware and operating systems software), Systems and Technology (solutions requiring advanced computing power and storage capabilities), and Global Financing (facilitates clients’ acquisition).
In 2012, International Business Machines Corp. (NYSE:IBM) recorded revenue of $104.5 billion and net income of $16.6 billion. This represents a growth of 9.1% and 23.7% in revenue and net income, respectively, over 2009. Compared with 2011, sales have declined 2.25% but net income has grown 4.72%. Net profit margin has expanded from 14% in 2009 to 15.9% in 2012.
In the previous quarter, revenue and net income declined 5.1% and 1.1%, respectively. The lackluster performance was due to the decline in hardware sales and lower dollar sales in Japan due to a weakening Yen. International Business Machines Corp. (NYSE:IBM) is trading at 2.09 times sales, and the trailing P/E is 13.4 while the forward P/E is 10.59. Cash on books is $11.99 billion, and the debt-equity is high at 173.82. The five year average dividend yield is 1.8%.
A fundamental perspective of Intel
Intel Corporation (NASDAQ:INTC) designs and manufactures integrated digital technology platforms consisting of a microprocessor and chipset, and develops and sells software and services primarily focused on security and technology integration.
Intel Corporation (NASDAQ:INTC) reported revenue and net income of $53.34 billion and $11 billion, respectively, in 2012. Over 2009, this is great growth of 52% and 152% in revenue and net income, respectively, but compared with 2011, this is a decline of 1.2% and 15%, respectively. The net profit margin has expanded significantly from 12.44% in 2009 to 20.63% in 2012.
However, more recent trends indicate contracting margins. In the latest quarter, revenue and net income declined 2.5% and 25.30%, respectively. Muted performance was mainly due to significantly lower sales in the PC market. Intel Corporation (NASDAQ:INTC) is trading at 2.18 times sales and the trailing and forward P/E multiples are nearly the same at around 11.5 times. Cash is $17.07 billion, and the debt-equity ratio is 25.85. The five year average dividend yield is 3.5%.
Recent performance of all the three companies indicates that the growth has slowed down significantly over the past year and the margins are contracting. All the companies are trading at reasonable valuations, but expectations for future growth are not very high. This is evident from the marginal difference between TTM and forward P/Es, especially in the case of Intel Corporation (NASDAQ:INTC). Further, Intel’s margins have declined significantly in the last quarter. Its dependence on PC sales, which is a fast shrinking market, makes it a relatively risky bet.
Leverage of International Business Machines Corp. (NYSE:IBM) is relatively high and the growth is less as compared with the others. Cisco Systems, Inc. (NASDAQ:CSCO) has shown more secular growth over the years and margins are also holding up. All these factors give Cisco a more balanced risk-reward ratio. However, growth in the sector is directly related to increased spending by Governments and the private sector, which, in-turn, is dependent on the turnaround in the world economy. Innovation is also important, especially in view of the dying PC market. Subject to improvement in these factors, the long-term outlook remains positive for Cisco Systems, Inc. (NASDAQ:CSCO).
The article A Fundamental Perspective of 3 Giants of the Technology World originally appeared on Fool.com.
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