Chip industry bellwether and Dow-30 component Intel (INTC- Free Intel Stock Report) has reported strong results for the fourth quarter and full-year 2016. On point, share net came in at $0.79 during the December period on a non-GAAP basis (excludes items we deem to be nonrecurring), which was a few cents above the prior- year tally. Results were even more impressive for all of 2016 as earnings per share were $2.72, a 9.2% advance over 2015, while revenues climbed 7.3%, to nearly $59.4 billion.
In many ways Intel was firing on most (if not all) cylinders in the fourth quarter. In general, the company benefited from stabilizing trends in the personal computer (PC) market. While it has made strides in diversifying operations into higher-growth areas of the chip market, its PC presence remains significant. This industry is highly susceptible to economic oscillations and has its seen its long-term growth rate slow substantially over the years.
Looking at Intel's results with a bit more granularity, Data Center Group fourth-quarter revenue climbed 8% year over year, to $4.7 billion. Intel's Internet of Things segment also chipped in with a 16% gain at the top line, to $726 million, which was above management's $704 million expectation. We believe this segment, which deals with the inter-networking of everyday devices, is one of the company's higher-growth areas long term. An example of this is a control that allows someone to set the thermostat in their house remotely. Memory revenues were also a contributing factor for top-line growth, increasing 25%, to $816 million, which was markedly above our estimate. Intel Security Group comparisons also came in above forecasts, advancing 7%, to $550 million.
Despite the good news for the December quarter, Intel stock nudged only slightly higher in aftermarket trading. We believe this could have been due to the relatively mundane outlook for the year recently begun. More specific, the company looks for revenues to be roughly flat, year over year, while the gross margin is likely to be 63%, give or take a couple of percentage points. Hence, we think much of the stock market's lack of enthusiasm reflects forward-looking estimates.
However, it should be noted, that 2016 was a record-setting year for the chip behemoth in terms of both sales and earnings. Thus, the roughly flat top-line outlook shouldn't be overly concerning. In fact, earnings per share is likely to increase slightly, to $2.80, according to management's guidance, which suggests an improvement in the operating margin. This doesn't surprise us, given the company's focus on cost management, manufacturing efficiencies, and productivity enhancements.
Another variable to keep in mind is the company's hunger for acquisitions. In fact, we believe this represents a key avenue to diversifying operations beyond its PC presence. The purchases of Altera, McAfee, among others, are a step in the right direction, from our perspective. We look for Intel to make further waves on the acquisition front, given its immense size and healthy cash hoard. Such additions, however, aren't included in our long-term forecast and could add meaningfully to profits.
We continue to view INTC shares as a solid selection for conservative accounts seeking a technology holding. The stock's favorable Safety rank, Price Stability rating, and healthy dividend should continue to pique the interest of risk-averse accounts.
About The Company: Intel Corporation is a leading manufacturer of integrated circuits. In addition to primarily supplying manufacturers of personal computers, the company serves a multitude of other global markets, including communications, industrial automation, military, and other electronic equipment. Intel’s product line consists of microprocessors, with the Pentium series being the most notable. It also manufactures microcontrollers and memory chips, and the company sells computer modules and boards, and network products.
