On the strength of an upgrade from Bank of America (NYSE: BAC), chipmaker Intel (NASDAQ: INTC) led a Nasdaq rally up 29.58 points to a Thursday close of 2,351.70. The BAC note on the chip sector was bullish, and specifically raised Intel from a neutral to a buy, which may have been the signal investors were looking for. Intel was up 0.66 to close at 22.08 today, but the promise of a turn in the semiconductor part of the tech cycle was really seen as the underlying good news by the market.
Technology stocks, along with the woeful homebuilders, the beleaguered financials, and the pounded-down retail stocks, have been going nowhere for months. When you add together the credit crunch and the economic slowdown (as well as the cyclical turndown in technology stocks due to their own cooling business cycle), many investors were wondering when there would be a sign of better things. Last week, Advanced Micro-Devices (Nasdaq: AMD) came out with a negative report on its own near-term business, and this dampened hopes for a tech turnaround. AMD, however, has been struggling, and many observers felt that its problems were more due to its own business situation than the problems in the economy or semi-conductor sector at large.
Still, with other techs such as Cisco Systems (Nasdaq: CSCO) recently stating that they did not expect significant improvement in their business for perhaps six months, it seemed that the techs were due to languish. Most tech companies said bookings for capital expenditures of tech equipment fell off dramatically even as far back as the start of the first quarter, when bookings for the new year’s business begin to show.
Many observers have said that there are still large, strong, technology companies that are weathering this downturn and will thrive as soon as the business cycle begins to turn with orders for routers, processors, computers, servers, and so on – the staples of technology companies. Intel, which will report its quarterly earnings on April 18, is expected to show a 28 cents EPS for the quarter against 22 cents for last year’s same quarter, so Wall Street is starting to re-think; perhaps it’s getting to be time to look at tech stocks again.
Intel has a market cap of $125 billion, earned $7 billion in 2007 on revenues of $38 billion. This came out to $1.18 per share. Projections for 2008 are still in line for $1.32 a share, with $1.59 a share still expected for 2009. These are healthy earnings growth figures of 12% and 20%, with five-year projections still intact at around the 15% mark. This underscores the bulwark nature of Intel and technology stocks, and their place in the economy despite their cyclical nature and despite the economic downturn just experienced.
Intel makes semiconductors, integrated digital technology platforms, and other related components for computing and communications. Intel is most widely known by consumers for their integrated circuits and microprocessors. Intel also makes chipsets, motherboards, flash memory, and wired and wireless network processors. They make communication products for industries such as cell and hand-set makers, as well as components for telecom and network service providers, so Intel’s reach is into both consumer and industrial use.
The company’s operating segments include: Digital Enterprise Group, Mobility Group, Flash Memory Group, Digital Home Group, Digital Health Group, and Channel Platforms Group. Their business is global, with most customers in America, Europe, Asia-Pacific, and Europe.
With more and more of the world becoming digitized, semiconductor manufacturers such as computer chip maker Intel will continue to find ways to expand business and fill demand, while innovating with its own developments and servicing the technology devices that are created and used by other businesses. The long-term business health of Intel looks good; now it will be a matter of seeing how investors, and thus the markets, interpret this and respond.
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