Shareholders of Intel Corporation (NASDAQ:INTC) are climbing up a wall of worry. On July 8, Evercore downgraded Intel to Underweight, citing fears of still-weakening PC trends, peaking chip prices, and the potential of Atom CPUs to cannibalize Core CPUs. Evercore now expects PC sales to fall 10% year-over-year, worse than the prior estimate of 6%. Citi was quick to join the party too, cutting earnings estimates for Intel Corporation (NASDAQ:INTC) ahead of the company’s earnings announcement on July 17. Investors got scared and immediately dumped their holdings. Shares were down nearly 4% for the day.
Intel Corporation (NASDAQ:INTC) belongs on my list of “boring businesses.” These businesses don’t change much over the years. Intel Corporation (NASDAQ:INTC) looks a lot like it did 25 years ago (when it shifted its focus to micro-processing chips), except it’s bigger now. Same with Wal-Mart Stores, Inc. (NYSE:WMT), Johnson & Johnson (NYSE:JNJ) and most other market leaders. Wal-Mart Stores, Inc. (NYSE:WMT) will keep selling everyday goods at the cheapest possible price. Johnson & Johnson (NYSE:JNJ) will keep selling everyday healthcare products like Listerine, Tylenol, and Band-Aids. And Constellation Brands will keep selling popular beer and wine labels to a thirsty public. It’s very boring, but very profitable too. No matter what happens to PC sales, Intel will keep making the most advanced, state-of-the-art chips in the world.
Ahead of the game
Intel Corporation (NASDAQ:INTC) isn’t just a market leader. Its competitors are barely even in the ballpark. In fact, Intel is so enormous that it’s able to first set the game rules – and then play the game. You know this by looking at the company’s numbers. Intel’s capital spending rose from $5.2 billion in 2008 to $11 billion last year. That figure will climb to $13 billion this year. The lion’s share of this money is invested in its most valuable asset: its cutting-edge chip making plants. In addition, Intel’s research and development (R&D) spending rose from $5.7 billion in 2008 to $10.2 billion last year. That, too, will rise this year. By investing heavily in plants and research, Intel consistently makes sure that it’s ahead of the game. That’s how it widens its economic moat. There simply aren’t many companies that can fork out a cool $10.2 billion a year for research. And that’s precisely why Intel will remain king.
Intel’s closest rivals are Advanced Micro Devices, Inc. (NYSE:AMD), and Texas Instruments Incorporated (NASDAQ:TXN). I believe that AMD is nothing more than a mediocre, unprofitable chipmaker. It lost over $1.1 billion in 2012 alone. But the more worrisome fact is its sales trend. Advanced Micro Devices, Inc. (NYSE:AMD) had sales of $6.5 in 2010, with only $5.4 of sales in 2012. This only means that its bigger rivals are stealing its market share. Perhaps that’s the direct result of its relatively low investment in R&D. In 2012, AMD invested only $1.3 billion in R&D; that’s almost one eighth of what Intel invested in the same year. Now, who do you suspect will come out with quicker, more advanced chips in the year 2020 – Advanced Micro Devices, Inc. (NYSE:AMD) or Intel Corporation (NASDAQ:INTC)? Personally, I don’t think AMD will be in business by then. And Texas Instruments Incorporated (NASDAQ:TXN) hasn’t been putting as much effort into R&D either. In 2012, the company invested only $1.8 billion in R&D, up from $1.5 in 2010. Similarly to AMD, Texas Instruments Incorporated (NASDAQ:TXN) has seen its sales trend downward from $14 billion in 2010 to $12.8 billion today.