Intel Corp. (NASDAQ:INTC) showed decent performance in 2016 as the stock was up nearly 6%. The stock is headed upward this year as well. Intel reported robust fourth-quarter results on Thursday.
In fourth-quarter 2016, the company posted EPS of 79 cents, surpassing estimates by four cents. The company’s revenue came in at $16.40 billion, surpassing the consensus by $650 million. This figure also represents a surge of 10% on a year-over-year basis.
The company’s revenue growth for the year was driven by its emerging business segments: data center, cloud computing and internet of things (IoT). The company also generated record yearly cash flow of $21.8 billion from its operations.
The internet of things market accounts for one of the hottest growth areas. According to a forecast report from IHS, IoT is projected to reach 30.7 billion devices in 2020. To benefit from this trend, Intel is aggressively focusing on businesses that will be dependent on cloud and IoT technologies.
To strengthen its position in the progressive IoT market, Intel made several major acquisitions that will help it gain a strong lead over its rivals in the upcoming years. Several acquisitions made by the company were Saffron Technology, Recon Instruments, Yogitech and Altera Corp.
Altera was the company’s the most significant acquisition. It manufactures freely programmable gate array chips, and its knowledge of FPGA chips is supporting Intel in building its robust position in data centers, machine learning and autonomous cars.
In the data processing chip market, Intel currently holds 99% market share. Major companies like Alphabet’s Google (NASDAQ:GOOG)(NASDAQ:GOOGL) are purchasing large amounts of these high-end server chips for their cloud businesses. This allows the company to generate 40% profit margins.
Recently, Intel’s foremost competitor, Advanced Micro Devices (NASDAQ:AMD), also launched new CPU architecture called Zen, which is intended to compete against the company’s prevailing processors. So far, AMD has been successful with its Zen architecture. As a result, Intel’s substantial profit margin is expected to take a hit in the imminent quarters.
Conclusion
Intel will have a hard time competing against Advanced Micro Devices due to pricing power.
On the bright side, Intel’s extensive free cash flow has permitted it to invest heavily in emerging businesses like IoT. Regardless of the competition, Intel is well positioned to benefit from these progressive markets in the future.
As an outcome, investors should consider buying Intel despite the looming threats from competitors.
Disclosure: I don’t hold a position in any of the stocks mentioned in the article.
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