Intel Corporation: Why INTC Stock Remains Upbeat

Intel-StockINTC Stock to Gain from Investments in Growth

Intel Corporation (NASDAQ:INTC) reported its fourth-quarter earnings Thursday and posted better-than-expected results. INTC stock traded slightly lower in the last session but is expected to get a boost from the quarterly results.

For the year 2016, Intel Corporation reported record sales of $59.4 billion as a result of the strength across the business, including revenue growth in Client Computing, Data Center, and the Internet of Things. The adjusted earnings came in at $2.72 per share. The quarterly revenue was also at a record high of $16.4 billion, with adjusted earnings per share at $0.79. However, Intel expects this year’s revenue to be almost flat. (Source: “News Release,” Intel Corporation, January 26, 2017.)

In its last quarterly results, Intel had guided for $15.7 billion in revenue for the fourth quarter, which had disappointed analysts and investors and had hit INTC stock hard.

Intel CEO Brian Krzanich exclaimed that Q4 was a terrific finish to a record-setting and transformative year for the company, and that he was confident about the future of Intel. He further added that the important steps taken to accelerate company’s strategy in 2016, successfully integrating “Altera,” and investing in growth opportunities have paid off. Intel is trying to refocus in the changing technology landscape, which is proving good for Intel stock. (Source: Ibid.)

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The business unit trends reported by Intel were encouraging. The revenue from its Client Computing Group, at $9.1 billion, increased by four percent year-over-year. The Data Center Group revenue, at $4.7 billion, was up eight percent year-over-year. Internet of Things revenue rose by 16% year-over-year, to $726.0 million.

The adjusted earnings in 2016 came at $2.72, which is a jump of over nine percent from the reported earnings of $2.49 in 2015.

The company has been spending a lot to maintain its lead as chip maker for PCs and servers. This year, Intel expects capital spending of around $12.0 billion, plus or minus $500.0 million, majorly driven by its Non-Volatile Memory Solutions Group. This is an increase of $2.4 billion from 2016. The company is making heavy investments as it focuses on building competencies in autonomous driving technology.

The high spending may have a negative impact on INTC stock in the short term, but stands to benefit Intel stock in the long run.

Early this month, Intel had announced acquiring a 15% stake in German digital mapping company HERE, which provides digital maps and location-based services for automotive and the Internet of Things. The two companies plan to collaborate on the research and development of a highly scalable proof-of-concept architecture that supports real-time updates of high definition maps for fully automated driving. (Source: “Intel to Acquire 15 Percent Ownership of HERE,” Intel Corporation, January 3, 2017.)

By focusing on this high growth area and restructuring itself, Intel Corporation seems to be going in the right direction, which shall buoy INTC stock. In November last year, Intel Corporation partnered with Mobileye NV (NYSE:MBLY) and Delphi Automotive PLC (NYSE:DLPH) on autonomous driving technology and also created a new group—Automated Driving Group—building upon Brian Krzanich’s vision for the future of automated cars.

The focus on high growth areas of data centers, cloud computing, and the Internet of Things is likely to bear fruit for the chip giant and will keep the interest in INTC stock high.