March 13, 2009
Technology (Semiconductor)
Henry Fund Research
Intel Corporation (INTC)
Jiarong Xia
Jiarong-xia@uiowa.edu
Investment Recommendation
Current Price Target Price
BUY
$13.95 $18.36
INVESTMENT THESIS
Due to IT spending cutbacks from both corporate and individual consumers, the whole semiconductor industry will face much lower demand in 2009. Intel is entering the recession in good financial shape and is able to scoop up market share, explore new markets, and increase revenues with the scarce capital it holds. (+) The tough spending environment has been a sales catalyst for netbooks. Sales of Intel’s cheap Atom processor soared as consumers shifted to buying cheap mini-notebook PCs, or netbooks. The popular netbook chip prevented overall unit decline percentages from going above 20%. Without Atom, worldwide PC processor unit shipments would have been significantly worse, declining 21.7% quarter over quarter and 21.6 % year over year.
$12.05-25.29 $80.76 5.56 66.2% 1.19 3.5% 15.77 1.99 2.07 10.43% 12.93% 7%
Source: http://www.stockcharts.com
Key Stock Statistics
52-Week Price Range Market Capitalization (B) Shares Outstanding (B) Institutional Ownership 60-Month Beta Dividend Yield Price/Earnings (ttm) Price/Book Price/Sales ROA (ttm) ROE(ttm) Projected 5-Year Growth
(+) Intel has a 3.5% dividend yield, which may be attractive to institutional money now on the sidelines. (+) The expected release of Windows 7 in 2010 will drive the upgrade of PC and the growth of PC unit sale. (+) On March 2, 2009, Intel formed a collaboration with Taiwan Semiconductor (TSM). With this joint effort, Intel intends to push its smallest processorAtom into some new areas, including handsets and embedded processors. (-) President Barack Obama may end tax breaks for companies that move jobs overseas, which will result in higher taxes on Intel’s profits made overseas. In 2008, Intel’s effective tax rate for NonU.S. income was 22%, while the tax rate for U.S. income was 44.8%. (-) PC makers are trying to save money by burning through their existing inventories of chips instead of buying a lot of new ones. That is a trend that has slammed chip makers since the downturn intensified in September, but now appears to be 1,2 worsening.
EPS ($)
Year EPS 2006 0.87 2007 1.2 2008 0.9 2009E 1.01 2010E 1.08 2011E 1.21
All earnings represent earnings from operations and have been filtered from net nonrecurring gains.
Valuation Models
Discounted Cash Flow Economic Profit Relative P/E Dividend Discount Model 18.36 18.36 22.66 24.75
Important disclosures appear on the last page of this report.
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EXECUTIVE SUMMARY
The global recessionary environment has battered the whole semiconductor industry. Due to IT spending cutbacks from both corporate and individual consumers, the whole semiconductor industry will face much lower demand in 2009, particularly in the United States and Europe. However, compared to its competitors, Intel is entering the recession in good shape with strong cash balance and is able to maintain a successful R&D effort, develop new products and production processes, and improve their existing products and processes at the same pace or ahead of their competitors. Intel also explored new markets such as mobile computing devices and flash memory with aggressive strategies and new partnerships. We feel that Intel’s current share price is undervalued and recommend a “BUY” for the stock.
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The product offerings for desktop market segments in TM 2008 and early 2009 include Intel® Core serial processors, Intel® Pentium® Dual-Core processors, TM Intel® Celeron serial processors, and Intel® Atom serial processors. The related chipsets for the desktop microprocessor offerings primarily include Intel® 4 Series Express Chipsets related chipsets and Intel® 3 Series Express Chipsets related chipsets for Intel® 900 Series Express Chipsets. The offerings for server and workstation market TM segments in 2008 and early 2009 include Intel® Xeon serial processors and Intel® Itanium® processors. In 2008 and early 2009, Intel will provide Quad-Core and Dual-Core Intel Xeon processors for embedded market segments, based on their 45nm process technology. Mobility Group (MG) This group’s products include microprocessors and related chipsets designed for the notebook and netbook market segments, wireless connectivity products, and energy-efficient products designed for the MID and ultra-mobile PC market segment.
COMPANY DESCRIPTION
Intel Corporation was founded in California in 1968 and reincorporated in Delaware in 1989. As the world’s largest semiconductor chip maker, Intel manufactures integrated circuits for computers, servers, hand-held 1,2 devices, and communication products.
The products offerings for desktop market segments include Intel® Centrino® and Intel® Centrino® 2 processor technologies based on microprocessors, chipsets, and wireless network connections. The mobile TM microprocessor offerings includes the Intel® Core 2 Revenue by Major Operating Segment Extreme mobile processors, Intel® Celeron® Dual-Core TM Intel’s net revenue income can be divided into three processor, and Intel® Atom processor, etc. 1,2 major operating segments. Other Groups
25,000
21,800
Revenue by Major Operating Segments
(Dollars in Millions) 21,467 19,460
20,000 15,000 10,000 5,000 2006 Digitial Enterprise Group 2007 Mobility Group
14,567 13,155
14,860
2,631
2,300
1,061
2008 All other
1,2
Figure1: Intel’s revenue by major operating segment
Digital Enterprise Group (DEG) This group’s products include microprocessors and related chipsets and motherboards designed for the desktop and enterprise computing market segments; microprocessors and chipsets for embedded application; components for communications infrastructure equipment, such as network processors; wired connectivity devices; and products for network and server storage.
Other groups include (1) NAND (Not AND) solution group, which offers advanced NAND flash memory products, focusing on system-level solutions for Intel architecture platforms such as solid-state drives (2) Digital Home Group, which offers products and solutions for use in consumer electronics devices designed to access and share Internet, broadcast, Optical media and personal content through a variety of linked digital devices within the home. (3) Digital Health Group, which focus on designing and delivering technology-enabled products and explore global business opportunities in healthcare information technology and healthcare research. (4) Software and Services Group, which promotes Intel architecture as the platform of choice for software and services. As show in Figure 1, DEG is the largest segment, which accounts for 55% revenue in 2008. The second largest segment, the Mobility Group, accounts for 42% of revenue in 2008. All other groups only account for 3% of the revenue in 2008. Intel’s net revenue was $37.6 billion in 2008, a decrease of 2% compared to 2007. Higher revenue from the sale of microprocessors and chipsets was
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more than offset by the impact of divestitures and lower revenue from the sale of motherboards. Revenue from the sale of NOR flash memory and cellular baseband products declined approximately $1.7 billion, primarily 1,2 as a result of divestiture of these business. Performance by Geographic segment
Geographic Breakdown of Revenue
(Dollars in Millions) 40,000
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24.1% decline from 2008 revenue. 11 The industry is expected to return to positive growth in 2010, growing 7.5%, followed by additional growth through 2012. Even with three years of increased revenue, the semiconductor industry will fail to return to 2008 revenue totals. In 2012, the worldwide semiconductor revenue is projected to reach $253.4 billion, still below 2008 revenue of $256.4 billon. Weak sale of microprocessors
Japan
More than 70% of Intel’s revenue is from the sales of microprocessors, and Intel is largely dependent on the 30,000 19,432 19,044 success of its microprocessor business. In 2008, the 17,477 Europe Hewlett-Packard Company accounted or 20% of Intel’s 20,000 net revenue (17% in 2007); Dell Inc. accounted for 18% 1,2 America of their net revenue (18% in 2007). The number of 7,715 7,443 7,512 PCs sold worldwide is a good predictor to project Intel’s 10,000 Asianet revenue. In the fourth quarter of 2008, processor 7,262 7,116 6,587 Pacific unit shipments declined 17% quarter over quarter and 3,983 3,925 3,806 11.4% year over year, while market revenue declined 2006 2007 2008 18% over the previous quarter and 22.2% compared to 1,2 the year-earlier period to $6.78 billion. We believe that Figure2: Intel’s revenue by geographic segment the demand remains so weak that the sequential The Asia-Pacific region is the fastest growing market for processor unit shipment will decline in both the first and Intel by geographic segment. As shown in Figure 2, second quarters of 2009.8 revenue in the Americas region decreased 4% in 2008 compared to 2007. Revenue in the Asia-Pacific, 2007-08 Worldwide PC Unit Shipments (in millions, source Gartner) Europe, and Japan regions remained approximately flat 160 1,2 2008 shipments 2007 Shipments in 2008 compared to 2007. 140
RECENT DEVELOPMENTS
Due to the uncertainty going forward, Intel’s management did not provide any revenue guidance for 2009, we expect that recent economic data suggests the chipmakers industry and the information technology sector as a whole could see a rebound in revenues and profits in the third quarter of 2009. 2009: a weak year for semiconductor industry
120
100
80
60
40
20
-
HP
Dell
Acer
Lenovo
Toshiba
Others
Figure4: 2007-08 worldwide PC unit shipments11
Worldwide Semiconductor Sales
(billions of dollars)
300
250 200 150 100
Intel Atom processor dominates netbook market Sales of Intel’s cheap Atom processor, which was introduced in 2007, soared as consumers shifted to buying cheap mini-notebook PCs, or netbooks. According to IDC, without Atom, worldwide PC processor unit shipments would have fallen 21.6% in the fourth quarter compared to the year-ago period. In 2008, Intel gained 4.8% in mobile PC processor market share, garnering 87.1% of the market. AMD finished with a 12.1% share of the mobile PC processor market, 13 a loss of 5.3%.
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0 1996 97 98 99 00 01 02 03 04 05 06 07
6
08
F09
Intel enters the customizable chip market
Figure3: Worldwide Semiconductor Sales 1996-2009
For years, Intel built its own chips in its own fabrication According to Gartner, worldwide semiconductor plants. The majority of its chips went into PCs. As many revenue is forecast to reach $194.5 billion in 2009, a as 80-85% of the world's PCs run on Intel chips. In the
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past, Intel has not been able to address many other semiconductor markets, including the $20 billion 8 application processor segment. On March 2, 2009, Intel and Taiwan Semiconductor Manufacturing Co. announced an agreement to collaborate on addressing technology platform, intellectual property (IP) infrastructure, and System-onChip (SoC) solutions. The collaboration is intended to expand Intel's Atom SoCs availability for Intel customers for a wider range of applications through 14 integration with TSMC's diverse IP infrastructure. Concerns on Intel’s equity investments
(in millions of U.S dollars)
1200 1000 800 600 400 200 0
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North American Semiconductor Industry three-month Book-to-Bill Data
1.2 1 0.8 0.6 0.4 0.2 0
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Book-to-Bill
Billings (Three-month avg.)
Bookings (Three-month avg.)
Intel’s equity securities investment is highly Figure 5: North American Semiconductor Industry three-month Book-to-Bill Data6 concentrated on IT technology companies. In 2008, Intel recognized net losses of $1.4 billion on equity Tightening market for both corporate IT and 1,2 consumer electronics spending method investments. The majority of Intel’s non-marketable equity investment portfolio balance is in companies in the flash memory market segment. As of end of 2008, Clearwire Corporation, Vmware, and Micron constituted 90% of their marketable equity securities. Declines in their investments in this market segment could result in significant impairment charges, impacting gains/losses on equity investments and interest. A survey conducted by ChangeWave on Feb 2009 shows that the collapse in U.S. business spending in 2008 has extended into 2009. However, the survey does show a slight leveling off in the rate of decline for the first half of 2009, and a glint of hope for the second half of the year. As shown in Figure 6, 41% of respondents said their company will spend nothing on IT or decrease IT spending for the second quarter. Due to stock market’s drop in 2008, Intel needs to take Though this is an extraordinarily high number, it is four a $950 million non-cash charge in the fourth quarter for points improved from November ’08’s survey results. the deterioration of the value of its investment in 1,2 Clearwire Corp.
INDUSTRY TRENDS
Booking-billing data shows weak demand for semiconductor manufacturers The three-month average global bookings and billings published by the Semiconductor Equipment and Materials International (SEMI) are a strong indicator for trends in the worldwide semiconductor industry. North America-based manufacturers of semiconductor equipment posted $285.6 million in orders in January 2009 (three-month average basis) and a book-to-bill ratio of 0.48, according to the January 2009 Book-to-Bill Report published today by SEMI. A book-to-bill of 0.48 means that $48 worth of orders was received for every $100 of product billed for the month. The bookings figure is about 51% less than the final December 2008 level of $579.1 million, and about 75% less than the $1.14 billion in orders posted in January 2008. The three-month average of worldwide billings in January 2009 was $592.2 million. The billings figure is about 12% less than the final December 2008 level of $672.4 million, and about 54 percent less than the January 2008 billings level of $1.28 billion.
Figure 6: Projected IT spending from Sept. ’01 – Feb. ‘098
As for the personal consumer segment, there's been another decline in PC buying, according to ChangeWave's latest survey in Febrary 2009 (Figure 7). Planned PC buying remains at the worst levels ever recorded since 2002. Only 4% of respondents will buy a desktop during the next 90 days and just 6% said they would buy a laptop. Gartner expects global IT spending to be down 3.7% in 2009. Moreover, the market research firm expects 2010 spending rebounding just 2.4%. On a five-year basis for the 2008 - 2012 periods, Gartner sees a growth of 3% a year. The new forecast suggests overall IT spending won’t surpass the 2008 level until 2011. We believe that
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until global financial markets stabilize, global GDP growth, including IT spending, is unlikely to strengthen.
INCT TXN ADI NVDA NSM AMD
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Market Cap (B) Price/EarningP/S ross Margin G 81.80 15.96 67.70% 20.70 11.18 58.40% 5.90 13.45 66.50% 5.20 44.86 39.70% 2.30 10.88 72.00% 1.53 12.09 56.80% ROE% Debt/Equity 12.93% 0.07 19.90% 0 18.05% 0 -1.20% 0.01 86.02% 5.67 -166.03% 1.15
Figure 7: Consumer computer purchasing next 90 days8
Although worldwide PC microprocessor unit shipments fell 11.4% in the fourth quarter of 2008 from the previous year, Intel managed to use its size and manufacturing muscle to grab a bigger piece of what was left of the microprocessor market. As shown in Figure 8, Intel grabbed an 81.9% unit market share in the fourth quarter 0f 2008, up 1.1% over the previous quarter. AMD fell to 17.7%, a loss of less than 1 %. For the full year of 2008, Intel sold 80% of all microprocessors, up 2.9% from 2007, while its major competitor AMD’s share of the market fell 3.1%.
PC microprocessor market share breakdown
Semiconductor industry cut back capital spending Research and development are critical to the advancement of the semiconductor industry. However, as the credit market continues deteriorating and earnings decline, more and more semiconductor companies will cut back their capital spending and lay off employees in 2009. Intel’s expectations of the firm’s total spending for 2009 on R&D, plus marketing, general, and administrative expenses, is between $10.4 billion and $10.6 billion. This is lower than Intel’s 2008 spending by approximately 6%. The spending reductions come from lower spending for revenue and profit-dependent items, and the standard shift between R&D and cost-of-sales spending as the company ramps its new 32nm process technology. R&D spending is approximately $5.4 billion and capital spending will be flat to slightly down from capital spending in 2008 of $5.2 billion.
100%
Intel
80.5%
AMD
76.2%
Others
78.9% 80.0%
80% 60%
40% 20% 0%
76.3%
76.7%
81.2%
82.1%
18.7%
0.8%
22.9%
23.3%
23.1%
20.9% 1.2%
18.7%
1.3%
17.7% 1.1%
17.0% 0.9%
0.8%
0.5%
0.2%
Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q4-08
Figure 8: Market share breakdown of microprocessor market
Intel's other competitors include Freescale, Infineon, Broadcom, Marvell Technology Group, and AMCC in the networking segment; its competitors in flash memory include Spansion, Samsung, Qimonda, In February 2009, Intel announced its plans to spend $7 Toshiba, STMicroelectronics, and Hynix. billion over the next two years building factories in the U.S. Intel is currently developing 32nm process ECONOMIC OUTLOOK technology and expects to begin manufacturing products using that technology in the second half of The recent financial crisis affecting the banking system 2009. We believe that all these investments will benefit and financial markets have resulted in a tightening in the credit markets, a low level of liquidity in many Intel once the economy recovers. financial markets, and extreme volatility in fixed income, credit, and equity markets. In addition, as consumers MARKETS AND COMPETITION worldwide drive over 50% of demand for The only major competitor to Intel on the x86 processor semiconductors, the fortunes of the semiconductor market is Advanced Micro Devices (AMD). Other industry are increasingly linked to macroeconomic smaller competitors include VIA and Transmeta, which conditions such as GDP, consumer confidence, and produce low-power processors for small factor disposable income. computers and portable equipment. The real estate crash, financial crisis affecting the banking system financial markets, and the threat to financial institutions have nearly brought the U.S.
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economy to a depression. Volatility will continue to persist into 2009 and global businesses remain darkly pessimistic.
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Figure 9: Federal Funds Target Rate4
Figure 11: Real Disposable Personal Income and Real Consumer Spending4
In hopes of jump-starting the economy and providing liquidity in the market, the U.S. Federal Reserve has cut its target rate to zero. In our opinion, we anticipate interest rates to remain between 0% and 0.25% throughout 2009. Aggressive stimulus plans have been passed and additional funds will be needed to provide a fresh round of capital injections into banks, an expansion of Federal Reserve lending programs, and a public-private effort to relieve banks of soured assets.
In conclusion, the industry is currently facing an unprecedented period of uncertainty. A resumption of sale growth will depend in part on the effectiveness of various measures now under consideration by the federal government to restore consumer confidence, improve liquidity, and stimulate economic growth.
CATALYSTS FOR GROWTH
Asia-Pacific region leads in revenue growth The Asia-Pacific region will continue to be the fastest growing market for semiconductors. Considering the tradition of saving money for the future in some regions like Singapore, Taiwan, and Mainland China, combined with continuing electronics industry migration to the Asia-Pacific, the Semiconductor Industry Association (SIA) forecasts the Asia-Pacific region will continue to be the faster-growing region, from 50.7% of global chip 7 sales in 2009 to 52.9% % in 2011. Demand for Netbooks Rises The tough spending environment has been a sales catalyst for low-cost, highly portable laptop computers with smaller screens—popularly known as netbooks.
Figure 10: Quarter-to-Quarter Growth in U.S. Real GDP 4
There is a strong relationship between GDP and semiconductor sales, with the latter having a tendency to decline during times of slowing economic growth. During the 4th quarter of 2008, U.S. real GDP declined 6.2%. In our opinion, U.S. GDP will continue to decline throughout out the first three quarters of 2009 and will th recover during the 4 quarter. Until global financial markets stabilize, global GDP growth, including IT spending, is unlikely to strengthen. The government stimulus package will likely be important in the long run, but will not be able to offset the gloomy near-term outlook.
Worldwide mobile PC shipments are expected to reach 155.6 million units, a 9% increase from 2008. Mobile PC growth will be substantially boosted by continued growth in mini-notebook shipments; excluding mininotebooks, other mobile PC shipments will grow just 2.7% in 2009. Worldwide mini-notebook shipments are forecast to total 21 million units in 2009, up from 2008 shipments of 11.7 million units. Mini-notebooks will cushion the overall PC market slowdown, but they remain too few to prevent the market’s steep decline. Mini-notebooks are forecast to represent just 8% of PC shipments in 2009. However, the negative side of netbook-driven mix-shift to low-end processor is a 12 decrease of gross margin. Release of Windows 7 will boost PC shipments
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Microsoft is planning to release Vista successor, (-) PC makers are trying to save money by burning Windows 7, in 2010. Windows 7 is expected to boost through their existing inventories of chips instead of global PC shipments by more than 10%. Desktop PCs buying lots of new ones. That is a trend that has will enjoy the majority of the expected increase in slammed chipmakers since the downturn intensified demand, while netbooks will also be affected due to the in September 2008. new operating system's touch screen features. (-) Because of higher impairment charges and However, notebooks are unlikely to benefit much from higher equity method losses, Intel suffered huge the new OS, according to the paper net losses on investment of $1.4 billion in 2008. Larrabee, Intel's attempt to enter the discrete graphics business Late this year, or early next, we'll likely see the first iterations of Larrabee, Intel's latest attempt to jump into the discrete graphics business, a $20 billion graphics processor unit (GPU) market. The leading developers in the graphics processors market include ATI, graphics product group of Advanced Micro Devices, and Nvidia Corp.
VALUATION
Our fundamental analysis of the company, based on our projection of future growth and profitability, calculated a value of roughly $19 per share for Intel Corporation. The following valuation techniques, DCF/EP, dividend model, and relative P/E separately generated the $19 share price. This analysis indicated the market is likely undervaluing Intel Corporation. A Intel may benefit from new sales channel number of factors might have caused this situation. Wireless carrier and related subsidies could reduce the The market as a whole has been oversold for some need for marketing funds, thus lowering the selling, time, and investors have lost confidence in the general, and administrative costs ratio in Intel's economy. Also, investors have associated the stock operating model. with PC manufacturers, an association that reflects the market’s expectations of future growth and profitability. In our model, we assumed that the company would be able to maintain its historical gross margin of roughly (+) The increasing demand for netbook will boost 53%. Given the company’s significant market share, the barriers to entry for a competitor to increase Intel’s Atom processor shipment. competition to the point of reducing its gross margin (+) Intel has a 3.5% dividend yield, which may be appears unlikely over the next 5 to 10 years. However, attractive to institutional money now on the the sale of low-end processors may possibly decrease sidelines. Intel’s overall margin, or other unforeseen events may (+) Intel tried to explore new markets such as occur that prevent the company from continuing to mobile computing devices and flash memory with operate with a 53% margin; thus, earnings would likely be significantly lower than expected. aggressive strategies and partnerships.
INVESTMENT POSITIVES
(+) The expected release of Windows 7 will drive the growth of PC unit shipment. (+) On March 2, 2009, Intel formed a collaboration with Taiwan Semiconductor (TSM). With this joint effort, Intel intends to push its smallest processorAtom into some new areas, including handsets and embedded processors. However, the revenue from the deal is not likely to be substantial, and margins from whatever revenue it does generate aren’t likely to be very good.
Our forward sales forecast predicted that Intel’s sale would decrease 7% in 2009 due to the global recession and would grow 8% over the next 5 years. This trend should occur as the world economy recovers during that time and IT spending picks up. However, different geographic segments will have different growth rates. We believe that the Asia-Pacific region will be the fastest growth area, followed by North America and Europe. Buy/Sell discipline The possible end of tax breaks for companies that move jobs overseas will result in higher taxes on Intel’s profits made overseas. If that really happens, then we recommend selling the stock. In our opinion, the stock should be sold when it either exceeds its intrinsic value, or an event, either globally or economically, causes a material revaluation of the company’s future growth and profitability.
INVESTMENT NEGATIVES
(-) President Barack Obama may end tax breaks for companies that move jobs overseas, which will result in higher taxes on Intel’s profits made overseas. In 2008, Intel’s effective tax rate for nonU.S. income was 22%, while the tax rate for U.S. income was 44.8%.
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REFERENCES
(1) Intel Corporation 2008 Annual Report (2) Intel Corporation 2007 Annual Report (3) U.S. Census Bureau, www.census.gov (4) U.S. Bureau of Economic Analysis, www.bea.gov (5) www.moneycafe.com (6) www.semi.org (7) Semiconductor industry association www.siaonline.org (8) www.changewave.com (9) Industry Survey, Semiconductors, Standard and Poor’s, November 18, 2008 (10) www.semiconductor.net (11) http://www.gartner.com/ (12) Mercury Research (13) Interactive Data Corp. www.idc.com (14) Yahoo! Finance, finance.yahoo.com
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IMPORTANT DISCLAIMER
This report was created by a student(s) enrolled in the Applied Securities Management (Henry Fund) program at the University of Iowa’s Tippie School of Management. The intent of these reports is to provide potential employers and other interested parties an example of the analytical skills, investment knowledge, and communication abilities of Henry Fund students. Henry Fund analysts are not registered investment advisors, brokers or officially licensed financial professionals. The investment opinion contained in this report does not represent an offer or solicitation to buy or sell any of the aforementioned securities. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Henry Fund may hold a financial interest in the companies mentioned in this report.
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Intel Corporation Key Assumptions
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Date Current Stock Price Market Cap of Stock Marginal Tax Rate Shares Outstanding Risk-free Rate Market Risk Premium Beta Normal Cash as % of Sales Debt Rating Implied Default Spread Pretax Cost of Debt Current Dividend Yield Long Term Growth Rate (CV) After Tax Cost of Debt Cost of Equity WACC Normal Cash as % of Sales DCF Target EP Target Relative P/E Dividend Discount Model
$ $
3/11/2009 13.95 68,470 31% 5,560 3.67% 5.00% 1.2 18.64% A4.51% 4.40% 3.00% 3.11% 9.67% 9.52% 16%
Date Provided by Yahoo! Finance Date Provided by Yahoo! Finance Intel Corporation 2007 Annual Report Date Provided by Yahoo! Finance 30 Year treasure Bond 3/3/2009 1928-2007 Geometric Average Return 2 year monthly Beta Estimated Based on prior years S&P rating, Date provided by Finra.com Data Provided by bondonline.com Date Provided by Yahoo! Finance Best guess conservative estimate Calculated on the WACC page Calculated on the WACC page Calculated on the WACC page Based on previous year data
$ $ $ $
18.36 18.36 22.66 24.75
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$ 18.36 3.5% 3.6% 3.7% 3.8% MRP 3.9% 4.0% 4.1% 4.2% 4.3% 4.4% 4.5% 4.6% 4.7% 4.8% 4.9% 0.0% 24.59 24.03 23.50 23.00 22.51 22.05 21.61 21.19 20.78 20.39 20.02 19.66 19.32 18.99 18.67 0.5% 24.59 24.03 23.50 23.00 22.51 22.05 21.61 21.19 20.78 20.39 20.02 19.66 19.32 18.99 18.67 1.0% 24.59 24.03 23.50 23.00 22.51 22.05 21.61 21.19 20.78 20.39 20.02 19.66 19.32 18.99 18.67 1.5% 24.59 24.03 23.50 23.00 22.51 22.05 21.61 21.19 20.78 20.39 20.02 19.66 19.32 18.99 18.67 CV growth rate 2.0% 2.5% $ 24.59 $ 24.59 $ 24.03 $ 24.03 $ 23.50 $ 23.50 $ 23.00 $ 23.00 $ 22.51 $ 22.51 $ 22.05 $ 22.05 $ 21.61 $ 21.61 $ 21.19 $ 21.19 $ 20.78 $ 20.78 $ 20.39 $ 20.39 $ 20.02 $ 20.02 $ 19.66 $ 19.66 $ 19.32 $ 19.32 $ 18.99 $ 18.99 $ 18.67 $ 18.67 3.0% 24.59 24.03 23.50 23.00 22.51 22.05 21.61 21.19 20.78 20.39 20.02 19.66 19.32 18.99 18.67
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$ $ $ $ $ $ $ $ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $ $ $ $ $ $ $ $
3.5% 24.59 24.03 23.50 23.00 22.51 22.05 21.61 21.19 20.78 20.39 20.02 19.66 19.32 18.99 18.67
$ $ $ $ $ $ $ $ $ $ $ $ $ $ $
4.0% 24.59 24.03 23.50 23.00 22.51 22.05 21.61 21.19 20.78 20.39 20.02 19.66 19.32 18.99 18.67
$ $ $ $ $ $ $ $ $ $ $ $ $ $ $
4.5% 24.59 24.03 23.50 23.00 22.51 22.05 21.61 21.19 20.78 20.39 20.02 19.66 19.32 18.99 18.67
Intel Corporation Key Assumptions
in millions 2006 2007 2008 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E CV $ 17,477 $ 19,432 $ 19,044 $ 17,901 $ 19,333 $ 21,267 $ 23,393 $ 25,733 $ 28,306 $ 30,571 $ 32,405 $ 33,377 -10% 11% -2% -6.00% 8.00% 10.00% 10.00% 10.00% 10.00% 8.00% 6.00% 3.00% $ 7,512 $ -1% 6,587 $ -20% 3,806 $ 3% 7,715 $ 7,443 $ 6,699 $ 6,900 $ 7,452 $ 8,048 $ 8,692 $ 9,387 $ 9,856 $ 10,251 $ 10,558 3% -4% -10.00% 3.00% 8.00% 8.00% 8.00% 8.00% 5.00% 4.00% 3.00% 7,262 $ 7,116 $ 6,404 $ 6,597 $ 7,190 $ 7,765 $ 8,387 $ 9,058 $ 9,510 $ 9,891 $ 10,188 10% -2% -10.00% 3.00% 9.00% 8.00% 8.00% 8.00% 5.00% 4.00% 3.00% 3,925 $ 3,983 $ 3,923 $ 4,002 $ 4,202 $ 4,328 $ 4,458 $ 4,569 $ 4,661 $ 4,730 $ 4,801 3% 1% -1.50% 2.00% 5.00% 3.00% 3.00% 2.50% 2.00% 1.50% 1.50%
Asia-Pacific % Sales Growth American % Sales Growth Europe % Sales Growth Japan % Sales Growth
$
$
Total revenue $ 35,382 $ 38,334 $ 37,586 $ 34,928 $ 36,831 $ 40,110 $ 43,535 $ 47,269 $ 51,320 $ 54,598 $ 57,277 $ 58,924 % Total Sales Growth 8% -2% -7% 5% 9% 9% 9% 9% 6% 5% 3%
10
Henry Fund Research
THE UNIVERSITY OF IOWA
Henry B. Tippie School of Management
Intel Corporation Income Statement
in millions 2006 2007 2008 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E CV $ 17,477 $ 19,432 $ 19,044 $ 17,901 $ 19,333 $ 21,267 $ 23,393 $ 25,733 $ 28,306 $ 30,571 $ 32,405 $ 33,377 -9.59% 11.19% -2.00% -6% 8% 10% 10% 10% 10% 8% 6% 3% $ 7,512 $ -0.82% 7,715 $ 7,443 $ 6,699 $ 2.70% -3.53% -10% 6,900 $ 3% 6,597 $ 3% 4,002 $ 2% 5% 36,831 $ 17,327 $ 19,505 $ 52.96% 11,987 33% 5,741 5,611 609 7,517 134 7,651 664 11 507 8,158 2,529 31% 5,629 4,890 1.15 7,452 $ 8% 7,190 $ 9% 4,202 $ 5% 9% 40,110 $ 18,869 $ 21,241 $ 52.96% 13,055 33% 6,253 6,110 663 8,186 135 8,322 690 12 535 8,857 2,746 31% 6,111 4,553 1.34 8,048 $ 8% 7,765 $ 8% 4,328 $ 3% 9% 43,535 $ 20,480 $ 23,054 $ 52.96% 14,169 33% 6,786 6,632 719 8,885 141 9,027 741 12 582 9,609 2,979 31% 6,630 4,272 1.55 8,692 $ 8% 8,387 $ 8% 4,458 $ 3% 9% 47,269 $ 22,237 $ 25,032 $ 52.96% 15,384 33% 7,368 7,201 781 9,647 150 9,797 798 13 632 10,429 3,233 31% 7,196 4,012 1.79 9,387 $ 8% 9,058 $ 8% 4,569 $ 3% 9% 51,320 $ 24,143 $ 27,177 $ 52.96% 16,703 33% 8,000 7,818 848 10,474 161 10,635 863 14 686 11,321 3,510 31% 7,812 3,770 2.07 9,856 $ 5% 9,510 $ 5% 4,661 $ 2% 6% 54,598 $ 25,685 $ 28,913 $ 52.96% 17,770 33% 8,511 8,317 902 11,143 173 11,317 935 15 745 12,062 3,739 31% 8,323 3,553 2.34 10,251 $ 10,558 4% 3% 9,891 $ 10,188 4% 3% 4,730 $ 2% 5% 4,801 2% 3%
Asia-Pacific % Sales Growth American % Sales Growth Europe % Sales Growth Japan % Sales Growth % Total Sales Growth Total Sales Cost of sales Gross Profit Gross margin Operating expenses % of total sales Research & development Marketing, general and administrative Amortization and other costs Operating income Gains (losses) on investments, net Income (loss) before interest and taxes Interest Income Interest Expense Total interest & other, net Income (loss) before taxes provision for taxes Effective Tax rate Net income (loss) Average Shares Outstanding
Earnings Per Share
$
6,587 $ 7,262 $ 7,116 $ 6,404 $ -19.77% 10.25% -2.01% -10% 3,806 $ 2.53% 3,925 $ 3.13% 8% 3,983 $ 3,923 $ 1.48% 0% -2% -7%
$
$
35,382 $ 38,334 $ 37,586 $ 34,928 $ 17,164 18,430 16,742 $ 16,431 $ 18,218 19,904 20,844 $ 18,496 $ 51.49% 51.92% 55.46% 52.96% 12,566 11,688 11,890 11,368 36% 30% 32% 33% 5,873 5,755 5,722 5,445 6,096 597 5,652 214 5,866 1,226 24 1,202 7,068 2,024 29% 5,044 5766 0.87 5,401 532 8,216 157 8,373 808 15 793 9,166 2,190 24% 6,976 5818 1.20 5,458 710 8,954 -1,756 7,198 496 8 488 7,686 2,394 31% 5,292 5562 0.95 5,321 577 7,129 136 7,265 618 9 609 7,874 2,441 31% 5,433 5,214 1.04
57,277 $ 58,924 26,945 $ 27,720 30,332 $ 31,204 52.96% 52.96% 18,642 19,178 33% 33% 8,928 9,185 8,725 946 11,690 186 11,876 997 16 793 12,669 3,927 31% 8,741 3,354 2.61 8,976 974 12,026 197 12,224 1,050 17 832 13,055 4,047 31% 9,008 3,172 2.84
11
Henry Fund Research
Intel Corporation Common Sized Income Statement
Asia-Pacific American Europe Japan Total revenue Cost of Goods Sold Gross Profit Operating expenses Research & development Marketing, general and administrative Amortization and other costs Operating income Gains (losses) on investments, net Total interest & other income, net Income (loss) before taxes provision for taxes Net income (loss)
THE UNIVERSITY OF IOWA
Henry B. Tippie School of Management
2006 2007 2008 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E CV 49.40% 50.69% 50.67% 51.25% 52.49% 53.02% 53.74% 54.44% 55.16% 55.99% 56.58% 56.64% 21.23% 20.13% 19.80% 19.18% 18.73% 18.58% 18.49% 18.39% 18.29% 18.05% 17.90% 17.92% 18.62% 18.94% 18.93% 18.34% 17.91% 17.93% 17.84% 17.74% 17.65% 17.42% 17.27% 17.29% 10.76% 10.24% 10.60% 11.23% 10.86% 10.48% 9.94% 9.43% 8.90% 8.54% 8.26% 8.15% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 48.51% 51.49% 35.52% 16.60% 17.23% 1.69% 15.97% 0.60% 3.40% 19.98% 5.72% 14.26% 48.08% 51.92% 30.49% 15.01% 14.09% 1.39% 21.43% 0.41% 2.07% 23.91% 5.71% 18.20% 44.54% 55.46% 31.63% 15.22% 14.52% 1.89% 23.82% -4.67% 1.30% 20.45% 6.37% 14.08% 47.04% 52.96% 32.55% 15.59% 15.23% 1.65% 20.41% -0.73% 1.74% 22.54% 6.99% 15.56% 47.04% 52.96% 32.55% 15.59% 15.23% 1.65% 20.41% 0.36% 1.38% 22.15% 6.87% 15.28% 47.04% 52.96% 32.55% 15.59% 15.23% 1.65% 20.41% 0.34% 1.33% 22.08% 6.84% 15.24% 47.04% 52.96% 32.55% 15.59% 15.23% 1.65% 20.41% 0.32% 1.34% 22.07% 6.84% 15.23% 47.04% 52.96% 32.55% 15.59% 15.23% 1.65% 20.41% 0.32% 1.34% 22.06% 6.84% 15.22% 47.04% 52.96% 32.55% 15.59% 15.23% 1.65% 20.41% 0.31% 1.34% 22.06% 6.84% 15.22% 47.04% 52.96% 32.55% 15.59% 15.23% 1.65% 20.41% 0.32% 1.36% 22.09% 6.85% 15.24% 47.04% 52.96% 32.55% 15.59% 15.23% 1.65% 20.41% 0.32% 1.38% 22.12% 6.86% 15.26% 47.04% 52.96% 32.55% 15.59% 15.23% 1.65% 20.41% 0.33% 1.41% 22.16% 6.87% 15.29%
Intel Corporation Balance Sheet
Assets Current Assets: Cash & cash equivalents Short-term investments Trading assets Accounts receivable, net Inventories Deferred tax assets Other current assets Total current assets Property, plant & equipment, at cost Less accumulated depreciation Property, plant & equipment, net Marketable equity securities Other long term investments Goodwill Other long-term assets Total assets Liabilities and stockholder' equity Current liabilities Short-term debt Accounts payable Accrued compensation & benefits Accrued advertising Deferred income on shipments to distributors Other accrued liabilities Income taxes payable Total current liabilities Long-term income taxes payable Deferred tax liabilities Long-term debt Other long-term liabilities Stockholder's equity Common stock Treasury stock Accumulated other income (loss) Retained earnings Total stockholders' equity Total Liabilities and stockholders' equity
(in Millions) 2006 2007
2008
2009E
2010E
2011E
2012E
2013E
2014E
2015E
2016E
CV
6,598 2,270 1,134 2,709 4,314 997 258 18,280 47,084 29,482 17,602 398 4,023 3,861 4,204 48,368
7,307 5,490 2,566 2,576 3,370 1,186 1,390 23,885 46,052 29,134 16,918 987 4,398 3,916 5,547 55,651
3,350 5,331 3,162 1,712 3,744 1,390 1,182 19,871 48,088 30,544 17,544 352 2,924 3,932 6,092 50,715
5,415 4,066 2,132 2,204 3,603 1,119 873 19,411 46,287 29,223 17,064 569 3,718 3,838 5,193 49,794
5,710 4,287 2,248 2,324 3,799 1,180 921 20,469 45,446 28,692 16,754 575 3,651 3,768 5,098 50,315
6,218 4,669 2,448 2,531 4,137 1,285 1,003 22,292 45,922 28,992 16,930 626 3,689 3,807 5,152 52,496
6,749 5,068 2,657 2,747 4,491 1,395 1,088 24,195 47,912 30,249 17,663 679 3,849 3,972 5,375 55,734
7,328 5,502 2,885 2,983 4,876 1,514 1,182 26,270 50,868 32,115 18,753 738 4,086 4,217 5,707 59,771
7,956 5,974 3,132 3,238 5,294 1,644 1,283 28,521 54,552 34,441 20,111 801 4,382 4,523 6,120 64,459
8,464 6,355 3,333 3,445 5,632 1,749 1,365 30,343 58,831 37,142 21,689 852 4,726 4,878 6,600 69,088
8,880 6,667 3,496 3,614 5,908 1,835 1,432 31,832 63,055 39,809 23,246 894 5,065 5,228 7,074 73,339
9,135 6,859 3,597 3,718 6,078 1,888 1,473 32,747 66,936 42,259 24,677 920 5,377 5,550 7,509 76,780
180 2,256 1,644 846 599 1,192 1,797 8,514 265 1,848 989 7,825 -57 28,984 36,752 48,368
142 2,361 2,417 749 625 1,938 339 8,571 785 411 1,980 1,142 11,653 261 30,848 42,762 55,651
102 2,390 2,015 807 463 2,041 0 7,818 736 46 1,886 1,141 12,944 -393 26,537 39,088 50,715
136 2,199 1,907 754 529 1,623 670 7,818 712 232 1,839 1,053 13,955 -69,344 -59 24,244 41,975 49,794
138 2,319 2,011 795 558 1,711 707 8,238 719 235 1,858 1,064 16,271 -67,226 -63 21,992 42,077 50,315
144 2,525 2,190 866 608 1,863 770 8,965 751 245 1,939 1,110 20,077 -66,301 -68 19,477 43,530 52,496
153 2,741 2,377 940 660 2,023 835 9,727 797 260 2,058 1,179 23,828 -67,462 -74 17,959 46,006 55,734
164 2,976 2,580 1,020 716 2,196 907 10,560 855 279 2,207 1,264 27,798 -69,850 -80 16,889 49,211 59,771
177 3,231 2,802 1,108 778 2,384 985 11,464 922 301 2,380 1,363 31,901 -73,255 -87 16,215 52,995 64,459
189 3,437 2,981 1,178 828 2,537 1,048 12,197 988 322 2,551 1,461 35,710 -77,175 -93 15,950 56,890 69,088
201 3,606 3,127 1,236 868 2,661 1,099 12,798 1,049 342 2,708 1,551 39,085 -81,046 -97 15,903 60,541 73,339
210 3,710 3,217 1,272 893 2,738 1,131 13,170 1,098 358 2,835 1,624 57,795 -68,427 -100 0 63,610 76,780
12
Henry Fund Research
Intel Corporation Common Sized Balance Sheet
2006 Assets Current Assets: Cash & cash equivalents Short-term investments Trading assets Accounts receivable, net Inventories Deferred tax assets Other current assets Total current assets Property, plant & equipment, at cost Less accumulated depreciation Property, plant & equipment, net Marketable equity securities Other long term investments Goodwill Other long-term assets Total assets Liabilities and stockholder' equity Current liabilities Short-term debt Accounts payable Accrued compensation & benefits Accrued advertising Deferred income on shipments to distributors Other accrued liabilities Income taxes payable Total current liabilities Long-term income taxes payable Deferred tax liabilities Long-term debt Other long-term liabilities Stockholder's equity Common stock Accumulated other comprehensive income (loss) Retained earnings Total stockholders' equity Total Liabilities and stockholders' equity 0.37% 4.66% 3.40% 1.75% 1.24% 2.46% 3.72% 17.60% 0.55% 3.82% 2.04% 0.00% 16.18% -0.12% 59.92% 75.98% 100.00% 0.26% 4.24% 4.34% 1.35% 1.12% 3.48% 0.61% 15.40% 1.41% 0.74% 3.56% 2.05% 0.00% 20.94% 0.47% 55.43% 76.84% 100.00% 0.20% 4.71% 3.97% 1.59% 0.91% 4.02% 0.00% 15.42% 1.45% 0.09% 3.72% 2.25% 0.00% 25.52% -0.77% 52.33% 77.07% 100.00% 0.27% 4.42% 3.83% 1.51% 1.06% 3.26% 1.35% 15.70% 1.43% 0.47% 3.69% 2.11% 0.00% 28.02% -0.12% 48.69% 84.30% 100.00% 0.27% 4.61% 4.00% 1.58% 1.11% 3.40% 1.40% 16.37% 1.43% 0.47% 3.69% 2.11% 0.00% 32.34% -0.12% 43.71% 83.63% 100.00% 0.27% 4.81% 4.17% 1.65% 1.16% 3.55% 1.47% 17.08% 1.43% 0.47% 3.69% 2.11% 0.00% 38.25% -0.13% 37.10% 82.92% 100.00% 0.27% 4.92% 4.26% 1.69% 1.18% 3.63% 1.50% 17.45% 1.43% 0.47% 3.69% 2.11% 0.00% 42.75% -0.13% 32.22% 82.55% 100.00% 2007 2008 2009E 2010E 2011E 2012E 2013E
THE UNIVERSITY OF IOWA
Henry B. Tippie School of Management
2014E
2015E
2016E
CV
13.64% 4.69% 2.34% 5.60% 8.92% 2.06% 0.53% 37.79% 97.35% 60.95% 36.39% 0.82% 8.32% 7.98% 8.69% 100.00%
13.13% 9.87% 4.61% 4.63% 6.06% 2.13% 2.50% 42.92% 82.75% 52.35% 30.40% 1.77% 7.90% 7.04% 9.97% 100.00%
6.61% 10.51% 6.23% 3.38% 7.38% 2.74% 2.33% 39.18% 94.82% 60.23% 34.59% 0.69% 5.77% 7.75% 12.01% 100.00%
10.87% 8.17% 4.28% 4.43% 7.24% 2.25% 1.75% 38.98% 92.96% 58.69% 34.27% 1.14% 7.47% 7.71% 10.43% 100.00%
11.35% 8.52% 4.47% 4.62% 7.55% 2.34% 1.83% 40.68% 90.32% 57.02% 33.30% 1.14% 7.26% 7.49% 10.13% 100.00%
11.85% 8.89% 4.66% 4.82% 7.88% 2.45% 1.91% 42.46% 87.48% 55.23% 32.25% 1.19% 7.03% 7.25% 9.81% 100.00%
12.11% 9.09% 4.77% 4.93% 8.06% 2.50% 1.95% 43.41% 85.97% 54.27% 31.69% 1.22% 6.91% 7.13% 9.64% 100.00%
12.26% 9.21% 4.83% 4.99% 8.16% 2.53% 1.98% 43.95% 85.10% 53.73% 31.37% 1.23% 6.84% 7.06% 9.55% 100.00%
12.34% 9.27% 4.86% 5.02% 8.21% 2.55% 1.99% 44.25% 84.63% 53.43% 31.20% 1.24% 6.80% 7.02% 9.49% 100.00%
12.25% 9.20% 4.82% 4.99% 8.15% 2.53% 1.98% 43.92% 85.15% 53.76% 31.39% 1.23% 6.84% 7.06% 9.55% 100.00%
12.11% 9.09% 4.77% 4.93% 8.06% 2.50% 1.95% 43.40% 85.98% 54.28% 31.70% 1.22% 6.91% 7.13% 9.65% 100.00%
11.90% 8.93% 4.68% 4.84% 7.92% 2.46% 1.92% 42.65% 87.18% 55.04% 32.14% 1.20% 7.00% 7.23% 9.78% 100.00%
0.27% 4.98% 4.32% 1.71% 1.20% 3.67% 1.52% 17.67% 1.43% 0.47% 3.69% 2.11% 0.00% 46.51% -0.13% 28.26% 82.33% 100.00%
0.27% 5.01% 4.35% 1.72% 1.21% 3.70% 1.53% 17.78% 1.43% 0.47% 3.69% 2.11% 0.00% 49.49% -0.14% 25.16% 82.22% 100.00%
0.27% 4.98% 4.31% 1.71% 1.20% 3.67% 1.52% 17.65% 1.43% 0.47% 3.69% 2.11% 0.00% 51.69% -0.13% 23.09% 82.35% 100.00%
0.27% 4.92% 4.26% 1.69% 1.18% 3.63% 1.50% 17.45% 1.43% 0.47% 3.69% 2.11% 0.00% 53.29% -0.13% 21.68% 82.55% 100.00%
0.27% 4.83% 4.19% 1.66% 1.16% 3.57% 1.47% 17.15% 1.43% 0.47% 3.69% 2.11% 0.00% 75.27% -0.13% 0.00% 82.85% 100.00%
13
Henry Fund Research
Intel Corporation Cashflow Statement
Cash & cash equivalents, beginning of year Cash flows provide by(used for) operating activities Net income (loss) Adjustment to net income Depreciation and Amortization Deferred taxes Changes in assets & liabilities: Trading assets Accounts receivable Inventories Accounts payable Accrued compensation & benefits Income taxes payable & receivable Other assets & liabilities Total adjustments Net cash flows from operating activities Cash flows provide by (used for) investing activities Additions to property, plant & equipment Acquisitions, net of cash acquired Purchases of available-for-sale investments Matures & sales of available for sale invests Investments in non-marketable equity instruments Net proceeds from divestitures Other investing activities Net cash flows from investing activities Cash flows provide by (used for) financing activities Increase (decrease) in short-term debt, net Proceeds from government grants Excess tax benefit from share-based payment arrangements Additions to long-term debt Repayment of notes payable Proceeds from sales of shares through equity incentive plans Repurchase & retirement of common stock Payment of dividends to stockholders Net cash flows from financing activities Net incr (decr) in cash & cash equivalents Change of Cash Cash & cash equivalents, end of year 2006 2007 $ 7,324 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 5,044 $ 5,973 $ (325) $ 324 1,217 (1,116) 7 (60) (444) 5,576 10,620 (5,779) (5,272) 7,147 (1,722) 752 (33) (4,907) (114) 123 (581) 1,046 (4,593) (2,320) (6,439) (726) $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $
THE UNIVERSITY OF IOWA
Henry B. Tippie School of Management
2008 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E CV 6,598 $ 7,307 $ 3,350 $ 5,415 $ 5,710 $ 6,218 $ 6,749 $ 7,328 $ 7,956 $ 8,464 $ 8,880 6,976 $ 6,018 $ (443) $ (1,429) 316 700 102 (248) 633 5,649 12,625 (5,000) (76) (11,728) 8,011 (1,459) 32 294 (9,926) (39) 160 118 125 3,052 (2,788) (2,618) (1,990) 709 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 5,292 $ 5,433 $ 5,629 $ 6,111 $ 6,630 $ 7,196 $ 7,812 $ 8,323 $ 8,741 $ 9,008 7,929 $ 6,529 $ 6,410 $ 6,477 $ 6,758 $ 7,175 $ 7,695 $ 8,298 $ 8,894 $ 9,441 (790) $ (489) $ (516) $ (561) $ (609) $ (662) $ (718) $ (764) $ (802) $ (825) 193 260 (395) 29 (569) (834) (189) 5,634 10,926 (5,197) (16) (6,479) 7,993 (1,691) 85 (560) (5,865) (40) 182 30 1,105 (7,195) (3,100) (9,018) (3,957) $ (1,030) $ 492 $ (141) $ 43 $ (108) $ 670 $ (1,715) $ 4,252 $ 9,685 $ 116 $ 200 $ 209 $ 228 $ 247 $ 200 $ 164 $ 101 $ 120 $ 207 $ 216 $ 236 $ 256 $ 207 $ 169 $ 104 $ 196 $ 338 $ 353 $ 385 $ 418 $ 338 $ 276 $ 170 $ 46 $ 50 $ 54 $ 59 $ 64 $ 68 $ 71 $ 73 $ 104 $ 179 $ 187 $ 204 $ 221 $ 179 $ 146 $ 90 $ 37 $ 63 $ 66 $ 72 $ 78 $ 63 $ 51 $ 32 $ 53 $ 334 $ 536 $ 684 $ 802 $ 812 $ 755 $ 626 $ 6,566 $ 7,287 $ 7,770 $ 8,380 $ 9,062 $ 9,401 $ 9,725 $ 9,811 $ 12,195 $ 13,398 $ 14,400 $ 15,576 $ 16,873 $ 17,723 $ 18,467 $ 18,820
$ (5,480) $ (5,310) $ (4,824) $ (4,266) $ (3,910) $ (3,642) $ (3,423) $ (3,443) $ (3,569) $ (29) $ (30) $ (33) $ (36) $ (39) $ (42) $ (45) $ (47) $ (49) $ - $ (222) $ (382) $ (399) $ (435) $ (472) $ (382) $ (312) $ (192) $ 1,265 $ - $ - $ - $ - $ - $ - $ - $ $ (794) $ $ (94) $ (5,131) $ (34) $ 171 $ 90 $ 3,878 $ (500) $ 1,633 $ (4,859) $ (2,868) $ (2,489) $ 2,065 $ $ $ (99) $ (5,661) $ $ $ $ $ $ $ $ $ $ (1) 171 79 171 (500) 1,722 (4,947) (2,934) (6,239) 295 $ (38) $ $ (108) $ (5,385) $ $ $ $ $ $ $ $ $ $ (6) 171 67 (485) (500) 1,875 (5,667) (2,959) (7,504) 508 $ (160) $ $ (117) $ (4,978) $ $ $ $ $ $ $ $ $ $ (9) 171 79 (2,519) (500) 2,035 (5,158) (2,991) (8,892) 531 $ (237) $ $ (127) $ (4,749) $ (11) $ 171 $ 75 $ (3,927) $ (500) $ 2,210 $ (5,257) $ (3,009) $(10,249) $ 579 $ (296) $ $ (138) $ (4,589) $ (13) $ 171 $ 73 $ (5,301) $ (500) $ 2,399 $ (5,361) $ (3,125) $(11,656) $ 628 $ (344) $ $ (147) $ (4,340) $ (13) $ 171 $ 76 $ (6,574) $ (500) $ 2,552 $ (5,259) $ (3,329) $(12,875) $ 508 $ (339) $ $ (154) $ (4,295) $ (12) $ 171 $ 75 $ (7,379) $ (500) $ 2,677 $ (5,292) $ (3,497) $(13,756) $ 415 $ (312) $ $ (158) $ (4,280) $ (9) $ 171 $ 75 $ (7,868) $ (500) $ 2,755 $ (5,304) $ (3,603) $(14,284) $ 255
$ $ $ $ $
(726) $ 6,598 $
709 $ 7,307 $
(3,957) $ 2,065 $ 295 $ 508 $ 531 $ 579 $ 628 $ 508 $ 415 $ 255 3,350 $ 5,415 $ 5,710 $ 6,218 $ 6,749 $ 7,328 $ 7,956 $ 8,464 $ 8,880 $ 9,135
14
Henry Fund Research
Intel Corporation WACC
(in Millions) Market Values of Equity Book Value of Debt Total Values of Capital WACC Risk Free Rate Mkt Risk Premium (LT Ave, geo.) Beta Cost of Equity Debt Rating Pre-tax Cost of Debt Marginal Tax Rate After-tax Cost of Debt Percentage Cost 68,470 97.72% 9.67% 1,600 2.28% 3.11% 70,070 100.00% 9.52% 3.67% 5.00% 1.2 9.67% A4.51% 31% 3.11%
THE UNIVERSITY OF IOWA
Henry B. Tippie School of Management
S&P rating Data provided by FINRA
15
Henry Fund Research
Intel Corporation Driver
EBITA Less: Taxes on EBITA Marginal Tax Rate Total Income Tax Provision Plus: Tax Shield on Interest Expense Less: Tax on Interest Income Less: Tax on Nonoperating Income Taxes on EBITA Plus: Change in Deferred Taxes NOPLAT INVESTED CAPITAL Operating Working Capital: Plus: Normal Cash Plus: Receivables Plus: Inventory Less: Accounts Payable Less: Accrued Expenses: Other Less: Income Taxes Payable Net Operating Working Capital Net Property, Plant and Equipment Other Operating Assets
NET INVESTED CAPITAL ROIC (NOPLAT/Invested Capital)
THE UNIVERSITY OF IOWA
Henry B. Tippie School of Management
2008 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E CV 8,954 7,129 7,517 8,186 8,885 9,647 10,474 11,143 11,690 12,026 31% 2,394 2 154 0 2,242 204 6,916 31% 2,441 3 191 234 2,018 -271 4,839 31% 2,529 4 206 248 2,079 61 5,499 31% 2,746 4 214 256 2,279 105 6,012 31% 2,979 4 230 273 2,479 110 6,516 31% 3,233 4 247 294 2,696 120 7,071 31% 3,510 4 268 317 2,929 130 7,675 31% 3,739 5 290 344 3,110 105 8,138 31% 3,927 5 309 367 3,256 86 8,520 31% 4,047 5 326 387 3,340 53 8,739
3,350 1,712 3,744 2,390 3,285 736 2,395 17,544 6,092 26,031
5,415 2,204 3,603 2,199 3,190 712 5,121 17,064 5,193 27,378
5,710 2,324 3,799 2,319 3,364 719 5,431 16,754 5,098 27,284
6,218 2,531 4,137 2,525 3,663 751 5,948 16,930 5,152 28,029
6,749 2,747 4,491 2,741 3,976 797 6,473 17,663 5,375 29,512
7,328 2,983 4,876 2,976 4,317 855 7,039 18,753 5,707 31,499
7,956 3,238 5,294 3,231 4,687 922 7,649 20,111 6,120 33,880
8,464 3,445 5,632 3,437 4,986 988 8,130 21,689 6,600 36,418
8,880 3,614 5,908 3,606 5,231 1,049 8,516 23,246 7,074 38,836
9,135 3,718 6,078 3,710 5,381 1,098 8,742 24,677 7,509 40,928
NOPLAT Invested Capital (Beginning)
ROIC (NOPLAT/Invested Capital) FREE CASH FLOW
6,916 -
4,839 26,031 18.59%
5,499 27,378 20.09%
6,012 27,284 22.04%
6,516 28,029 23.25%
7,071 29,512 23.96%
7,675 31,499 24.37%
8,138 33,880 24.02%
8,520 36,418 23.39%
8,739 38,836 22.50%
NOPLAT Net Investment (change in invested capital)
Free Cash Flow (NOPLAT - Net Investment)
6,916 -
4,839 1,347 3,492
5,499 -94 5,593
6,012 745 5,267
6,516 1,482 5,033
7,071 1,987 5,084
7,675 2,381 5,294
8,138 2,539 5,600
8,520 2,418 6,102
8,739 2,092 6,647
ECONOMIC PROFIT
Invested Capital (Beginning) ROIC WACC
EP (Invested Capital*(ROIC-WACC))
26,031 18.59% 9.52% 2,361
27,378 20.09% 9.52% 2,893
27,284 22.04% 9.52% 3,415
28,029 23.25% 9.52% 3,847
29,512 23.96% 9.52% 4,262
31,499 24.37% 9.52% 4,677
33,880 24.02% 9.52% 4,913
36,418 23.39% 9.52% 5,053
38,836 22.50% 9.52% 5,042
NON-OPERATING ASSETS
Cash on Hand "Normal" Cash Excess Cash Short-Term Investments Long-Term Investments Non-Operating Assets
3,350 5,827 0 5,331 4,023 9,354
5,415 5,415 0 4,066 4,398 8,464
5,710 5,710 0 4,287 2,924 7,211
6,218 6,218 0 4,669 3,718 8,387
6,749 6,749 0 5,068 3,651 8,718
7,328 7,328 0 5,502 3,689 9,191
7,956 7,956 0 5,974 3,849 9,823
8,464 8,464 0 6,355 4,086 10,442
8,880 8,880 0 6,667 4,382 11,050
9,135 9,135 0 6,859 4,726 11,585
16
Henry Fund Research
Intel Corporation Valuation
Intel Corporation Valuation Calculations WACC CV Growth Rate CV ROIC Cost of Equity
THE UNIVERSITY OF IOWA
Henry B. Tippie School of Management
9.52%
3.00% 22.50%
9.67% 2013E 5084 3227 2014E 5294 3068 2015E 5600 2963 2016E 6102 2948 CV 116161 56119
2009E
DCF Model
2010E 5593 4663
2011E 5267 4009
2012E 5033 3498
FCF PV(FCF) PV(FCF) + PV(Non-Oper) - PV(Debt) - PV(ESOP) PV(Equity) Shares Outst.
Target Price Target Price EP Model
3492 3189 $ $ $ $ $
$ $
83,683 8,464 1,600 (24) 90,571 5560
16.29 18.36
As of Last FY End As of 4/19/2009 (growth at cost of capital)
ROIC EP PV(EP) PV(EP) Invested Capital PV(Operations) + PV(Non-Oper) - PV(Debt) - PV(ESOP) PV(Equity) Shares Outst.
Target Price Target Price
18.59% 2361 2156 $ $ $ $ $ $ $
$ $
20.09% 2893 2412
22.04% 3415 2599
23.25% 3847 2674
23.96% 4262 2705
24.37% 4677 2710
24.02% 4913 2599
23.39% 5053 2441
22.50% 77325 37356
57,652 26,031 83,683 8,464 1,600 (24) 90,571 5560
16.29 18.36
As of Last FY End As of 4/19/2009 (growth at cost of capital)
17
Henry Fund Research
VALUATION OF OPTIONS GRANTED IN ESOP
THE UNIVERSITY OF IOWA
Henry B. Tippie School of Management
Ticker Symbol Current Stock Price Risk Free Rate Current Dividend Yield Annualized St. Dev. of Stock Returns
INTC 13.95 3.67% 4.40% 10.00%
Range of Number Outstanding Options of Shares 0-15 600,000 5.26 15.01-20 86,500,000 18.37 20.01-25 274,500,000 22.53 25.01-30 122,000,000 27.23 30.01-35 48,900,000 31.35 35.01-40 20,000,000 38.43 40.01-72.88 59300000 59.85 Range 8 Total 611,800,000 $ 26.45
Average Exercise Price
Average Remaining Life (yrs)
3.4 4.4 3.6 4.1 1.7 1.6 1.4
$ $ $ $ $ $ $
B-S Option Price 7.37 (0.25) (0.03) (0.00) (0.00) (0.00) (0.00)
$ $ $ $ $ $ $
Value of Options Granted 4,421,235 (21,207,368) (7,014,604) (391,328) (0) (0) (0)
(24,192,065)
3.33 $
(0.00) $
This spreadsheet computes the value of shares granted through an ESOP plan.
18
Henry Fund Research
Intel Corporation Relative P/E
Intel Corporation Valuation Calculations
THE UNIVERSITY OF IOWA
Henry B. Tippie School of Management
Company Texas Instruments Inc. (TXN) Analog Devices Inc. (ADI) NVIDA Corporation (NVDA) National Semiconductor Corpora (NSM) Peer average Intel Corporation (INTC)
Price 16.45 20.24 9.89 10.15
EPS 08 EPS 09E EPS 10E 5-yr growth P/E 08 0.24 0.68 0.86 9% 0.53 0.78 0.95 10% -0.19 0.21 0.52 12% 0.23 0.14 0.24 7%
P/E 09 11 13 45 11 13 14 46 14 21.75
P/E 10
PEG 08 PEG 09 PEG 10 13 7.615741 2.687908 2.125323 15 3.818868 2.883191 2.367251 47 -4.33772 5.232804 2.113248 16 6.304348 8.055556 4.699074 3.35 4.71 2.83
20.09 $ 13.95 $ 0.95 $ 1.04 $ 1.15 8% 15.96
22.75
1.832717 1.673274 1.514869
Fair Market Price
PE 08 PE 09 PE 10 Average
19.12 22.67 26.19 $ 22.66
PEG 08 PEG 09 PEG 10 Average
25.50 39.31 26.03 $ 30.28
19