Reports Q2 2020 results on Thursday, July 23, after market closes
Yield forecast: $ 18.53 billion
EPS expectation: $ 1.11
Intel (NASDAQ :), the world's largest chipmaker, reporting revenues later in the second quarter, is arguably one of the largest beneficiaries of the new, COVID-19 normal. Investors are optimistic that this will be confirmed when the company's release shows an increasing demand for chips running the laptops and servers companies need to make people work from home.
The Santa Clara, California-based company has survived the current economic downturn better than other hardware manufacturers, as corporate customers purchased additional laptops to allow remote workers to work.
At the same time, data center owners have responded to a wave of video conferencing, social media usage, and movie streaming by stocking expensive Intel processors with server technology.
These trends led to a 14% increase in PC-related chip sales in the and a 43% gain in the company's data center division.
This unexpected rise in demand in the first half was reflected in the run-up to Intel shares during the pandemic.
The stock closed at $ 61.05 on Wednesday, an increase of more than 40% from the dip in March. For the full year 2020, it has so far increased by 2%.
Spike In Demand Sustainable?
In the future, however, it is unclear how long this peak will remain in demand and whether Intel will experience any delay in sales in the second half of the year, as government and corporate customers are going through the worst recession since 2008.
"The picture of the second half of demand is more uncertain," Chief Executive Officer Bob Swan told analysts in April. For Intel's PC chip business, the economic slowdown will outstrip demand from the home work trend, the company said.
One of the biggest obstacles to Intel's share price in 2019 was that the company had fallen behind with the introduction of its next-generation chip technology, which many analysts believe should be one of the main drivers of growth.
Continued delays in this area have allowed Intel rivals, including Taiwan Semiconductor Manufacturing (NYSE 🙂 and Advanced Micro Devices (NASDAQ :), to take the leap forward by rolling out their own cheaper, higher-performing chips.
After spending a record amount in 2019 to keep up with the world's most advanced technologies, Intel is catching up. It accelerates mass production of the smallest transistors it has ever made, measuring about 10 nanometers in length, or less than 10 thousandths of the width of a human hair, with the expectation that it will increase their competitive advantage within this segment.
Still, competition from AMD and other players remains a threat, particularly to Intel's dominance in the data center market. At the same time, some of the company's major customers are increasingly designing their own processors.
Apple (NASDAQ 🙂 said last month that it plans to sell Mac computers using in-house designed processors, a move that could end the 15-year alliance with Intel.
Nevertheless, there is much to recommend Intel shares. With a forward price-to-earnings multiple of 12.72, the stock still looks cheap. The broad canal and massive R&D spending ensure that the stock remains a good long-term bet despite some competitive pressure.
In addition, the stock pays an annual dividend of $ 1.32 per share, for a current return of 2.16%; the payout amount has grown by approximately 7% per year, making it an attractive choice to include in an income generating portfolio.
Bottom Line
Intel is well positioned to take advantage of the fundamental factors underlying the global semiconductor market. The COVID-19 pandemic and the move to remote working and video conferencing have further accelerated these trends.
