Intel Stock: Time to Bail on Intel Corporation (NASDAQ:INTC)?

Intel StockHere’s Why INTC Stock Still Has a Chance

When the industry climate changes, companies need to adapt quickly, otherwise they become obsolete. Fortunately, Intel Corporation (NASDAQ:INTC) seems to be keeping up with industry trends just fine.

Intel is the inventor of the “x86” series of microprocessors and is still the leader in the personal computer (PC) processor market. However, INTC stock plunged after the dotcom bubble burst and is yet to make a meaningful comeback.

Now, the PC market is facing strong headwinds, with total PC unit shipments declining quarter after quarter. It shouldn’t come as a surprise, then, that sentiment toward Intel stock hasn’t really been that bullish lately.

In the face of industry headwinds, Intel has been shifting its focus. The company recently reported its second-quarter earnings. Other than actual financial results, investors were also looking for signs on how the new strategy is working.

As you’d expect, Intel’s PC business declined. In the second quarter of 2016, revenue from Intel’s “Client Computing Group” came in at $7.3 billion, down three percent sequentially and also down three percent year-over-year. (Source: “Intel Reports Second Quarter Revenue of $13.5 Billion,” Intel Corporation, July 20, 2016.)

According to Intel’s chief executive officer, Brian Krzanich, future growth of Intel will lie in data centers, the Internet of Things, and programmable solutions.

In the second quarter, Intel’s “Data Center Group” revenue climbed five percent year-over-year to $4.0 billion, while its “Internet of Things Group” revenue came in at $572 million, down 12% sequentially but up two percent year-over-year. Finally, the company’s “Programmable Solutions Group” revenue saw the biggest boom. Its quarterly revenue totaled $465 million, up 30% sequentially. However, part of that revenue increase was due to Intel’s acquisition of field-programmable gate array (FPGA) technology company Altera Corporation.

Then there are earnings. Even though the U.S. stock market has soared past its all-time highs, earnings can be tricky. A company can post a perfectly good earnings report and its stock can still get killed. For Intel, its financials weren’t perfect.

In the reporting quarter, the company generated $13.53 billion in revenue, slightly below Wall Street’s projection of $13.54 billion. The chipmaker posted adjusted earnings of $0.59 per share, beating analysts’ estimates of $0.53 per share.

After the earnings release on Wednesday, Intel stock fell as much as three percent in after-hours trading. On Thursday morning, it was down more than four percent.

Despite a decent quarter, its segment-specific numbers did not meet expectations. Revenue from Intel’s Data Center Group fell short of analysts’ expectations of $4.16 billion, while revenue from its Internet of Things Group was much lower than Wall Street’s projection of $663.8 million.

So, what does the future hold for the legacy tech company?

Well, the PC industry is expected to continue its downtrend. In 2016, a total of 255.6 million units of PCs are expected to be shipped worldwide. That’s a 7.3% drop from the 275.8 million units shipped in 2015. In 2017, the number is expected to fall another 2.3% to 249.5 million units. (Source: “Personal Computer Shipments Worldwide from 2009 to 2020,” Statista, last accessed July 21, 2016.)

But the company is not just sitting around. Earlier this year, Intel announced a restructuring plan, aiming to shift the company from PC-driven to one that focuses on cloud computing and connected devices. The plan involves increasing investments in its data center, Internet of Things, memory and connectivity businesses, while laying off 12,000 employees globally. (Source: “Intel Announces Restructuring Initiative to Accelerate Transformation,” Intel Corporation, April 19, 2016.)

In a statement on Wednesday, company CEO Krzanich said that those restructuring initiatives are “solidly on-track.”

Personally, I believe that with a shift of focus to cloud and IoT, along with a job cut, Intel would still be able to deliver year-over-year revenue growth if the PC industry experiences a mid-single-digit decline in unit shipments.

The Bottom Line on INTC Stock

At the end of the day, when you look at Intel stock, you should really ask yourself what the goal is for your investment. If you’re chasing after the next big thing in tech, then this decades-old chipmaker might not be for you. But if you want to invest in a mature tech company with wide economic moats in its business and a three percent dividend yield, INTC stock is worth a serious look.