by Altaf Sahibzada

Created on: May 19, 2008   Last Updated: February 11, 2010

Investing In Intel One of The Safe Stocks

Steep Fall in the Stock Price

A few months back, fear of worsening economic conditions pushed down the price of Intel by more than 25 per cent. This appeared more the outcome of a perception rather than any real weakening of the internal strength of this stock.

The stock was hammered soon after its quarterly results and update of January 15, 2008. This was a very big drop for a stock like Intel and that too in the face of particularly no bad reason.

The two main reasons for this steep fall were the future guidance provided by Intel and the current economic conditions.

Intel reported a revenue shortfall of $100 million during the 4th quarter, constituting roughly 7% of its total revenue. The precautionary outlook by Intel for 2008 is considered to be an indication of softening of PC sales.

Secondly, as the US economy continues with economic woes, prospects for Intel were not considered to be good. It is believed that technology stocks are the first casualties of any downturn in an economy. This is truer in case of semiconductor suppliers like Intel.

The Positive Factors

Though Intel sounded to be cautionary in its 2008 outlook, it did not indicate any softening of chip sales. On the other hand the chipmaker maintained that it will experience robust demand for processors and chipsets. The company does not see any diminution of PC sales as a whole. Rather it is expected that any shortfall in revenue shortfall in US will be offset by other markets notably the emerging global markets. This was confirmed during its latest quarterly results.

It was explained that the reason for a small shortfall in Intel revenues was because of flash memory chips. There has been an excess supply of these in the market and has been a problem for other suppliers as well. This was the main culprit behind Intel's cautionary guidance.

Besides the expected shortfall in flash memory chips, there is no other factor expected to negatively impact the revenue of the company.

The Prospects

Intel has stated that their demand will remain strong during 2008. It has maintained that the demand for PCs and other gadgets made with its chips will continue to remain high.

In view of the prevailing conditions, it is unlikely that there will be any major downfall in the prospects of Intel revenue. World is no longer too much dependent upon the condition of US economy. There are other markets which provide strong scope for economic progress and future growth. Because of this, any reduction in earnings in US may no longer be a major factor in overall Intel revenue. The company is experiencing robust demand in other parts of the world and this will compensate it from the losses from US market.

The above was confirmed by results of AMD, the rival chip maker. Whatever Intel stated in its results and future outlook, was broadly confirmed by AMD.

Intel is a world technology leader in its own sphere. The meltdown in its stock during 2008 provided an excellent opportunity to savvy investors to acquire one of the most favored stocks. This is not only for the growth of the stock but also for dividends. Intel has been steadfast and consistent in its earnings.

Though Intel stock has come up from its lows, it still appears to be undervalued. It is a safe growth and dividend paying stock.

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