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Intel Inc.: A financial analysis

David Berglund

An analysis of Intel Inc. focusing on current and future challenges, ethical issues, and a high-
level financial overview.

A c c o u n t i n g 6 0 1

12

David Berglund
Accounting 601 Kalina
Company Financial Analysis Intel

SECTION 1 GENERAL DESCRIPTION OF THE COMPANY

SECTION 2 FIVE CHALLENGES FACING INTEL

1. MOVE TO SMALLER DEVICES AND CLOUD COMPUTING

2. APPLE
3. R&D RISK
4. NVIDIA/AMD
5. DEVELOPERS

4
5
6
6
7

SECTION 3 ETHICAL ISSUES FACING THE COMPANY

1. EXTERNAL/INTERNAL COMMUNICATIONS AND STANDARDS

2. ENVIRONMENTAL INITIATIVES
3. ANTI-COMPETITIVE BEHAVIOR

8
9
10

SECTION 4 FINANCIAL ANALYSIS

10

SECTION 5 CONCLUSION

13

BIBLIOGRAPHY

15

ADDITIONAL FIGURES

19

David Berglund
Accounting 601 Kalina
Company Financial Analysis Intel

Section 1 General description of the company

Intel is a company headquartered out of Santa Clara, California, that produces semiconductors,
chipsets and microprocessors for computers, tablets, and smartphones. They were first
incorporated in 1968 and later re-incorporated in 1989 (Intel Inc., 2011). Intels primary
consumers are component designers and manufacturers such as Apple and HP and their products
can be found in many market segments such as in smartphones, automobiles, medical devices,
and data centers (Intel Inc., 2011). As of the end of 2011, they had just over 100,000 employees
worldwide with approximately 55% of those working in the United States. (Intel Inc., 2011).
Intels primary customer base is original equipment manufacturers (e.g., Dell and
Hewlett-Packard) that utilize their chipsets in laptops and desktops for consumer and
business use. During 2011, Hewlett-Packard provided 19% of Intels net revenue
and Hewlett-Packard provided 15% of Intels revenue. No other customer accounted
for more than 10% of their revenue, showing that they have a broad customer base
and that even if one company were to reduce product requests, they would not have
a huge financial impact. Other customers include original design manufacturers
(e.g., Compal Electronics) and distributer/reseller markets. Their resale market includes
thousands of indirect customers whom purchase boxed processors and sell them in direct to
consumer retail outlets.
Their core products are: Phone Components, McAffee software, Wind River Software Group,
Non-volatile memory solutions, and PC processing components (Intel Inc., 2011). A more simple
way of viewing their business is by breaking
down their operating segments: PC Client
PC Client Group
Group, Data Center Group, Architecture and
Data Center Group
Operating Segments, Software and Services,
and Other, with the 66% of their revenue
Other Intel Architecture Operating Segments
stemming from the PC Client Group (Intel Inc.,
Intel Mobile
Intelligent
Netbook and
Ultra Mobility
Communications
Systems Group
Tablet Group
Group
2011).
Software and Services Operating Segments

The PC Client group is the segment of business

most consumers recognize. It is through this
segment that they produce the chipsets that
All Other
drive notebook and desktop computers.
Non-volatile Memory Solutions Group
Superbowl fans may have seen the Intel Inside
commercials marketing their Xeon and Core i7
processors, but what most consumers dont know is how these chips work. In short, Intels
semiconductors are used in the development of microprocessors which incorporate all of the
functions that a CPU (central processing unit) performs on a single integrated circuit. They
receive digital data (binary in form: 0s and 1s) and process it according to the instructions in the
code, thus allowing computers and mobile devices to work. Intel was the creator of the first
microprocessor in the world (Intel, Intel company information, n.d.) and according to a recent
report retains 80.3% of the global market share (Worldwide PC microprocessor, 2012). Their
largest, and some might say only, competitor in the microprocessor space is AMD which holds
19.6% market share (Worldwide PC microprocessor, 2012).
McAfee

Wind River Software

Group

Software and
Services Group

David Berglund
Accounting 601 Kalina
Company Financial Analysis Intel

Intels second largest segment (delivering 19% of revenue), the Data Center Group, focuses on
delivering high-performance chips that power server, workstation, and storage platforms. These
data centers serve as the backbone of networked computing, powering the internet and cloud
computing. Intel has an even stronger foothold in the data center market, maintaining 94.5%
penetration with AMD as its next largest rival carrying just 5.5% of the market (Worldwide PC
microprocessor, 2012). As will be discussed in future sections, these sectors provide a strong
hedge against the mobile push in the market because they help power cloud computing.
The Other Intel Architecture Operating Segments are focused on delivering products in the
mobile space, including tablets, netbooks, and smartphones. While this is one of the smaller
segemnts of intel from a revenue perspective, it has the greatest room for growth; one of Intels
key objectives according to their 10-k is to expand their technological reach into new market
segments such as smartphones, tablets, and car dashboards (Intel Inc., 2011).
Finally, the Software and Services
Operating Segment develops
19%
software that can be run on the
Data Center Group
Other Intel Architecture OS
platforms created by the PC Client
Software and Services OS
Group and the Data Center Group
All Other
9%
with the goal of creating an
PC Client Group
66%
3%
ecosystem that is optimized for Intel
3%
products. This integrated model
Percentage of Revenue by Segment
delivers high-performance and speed
while maintaining security between all
interconnected nodes. A major acquisition took place in this segment during 2011 when Intel
purchased McAfee Inc. on February 28th for $6.6 billion in cash and $48 million in share-based
awards (Intel Inc, 2011). One other main acquisitions for Intel in 2011 was also in this segment,
with a total of $2.1 billion spent to purchase Wireless Solutions business from Infeon
Technologies (Darling, 2011).

Section 2 Five challenges facing Intel

1. Move to smaller devices and cloud computing
As microprocessors become increasingly powerful, the growing trend is towards consumers
using only their laptop and/or smartphone for most tasks instead of the larger and more powerful
desktop machines. The factors limiting this movement are the energy efficiency of microchips,
memory storage cost, and input/output modules (keyboard and monitors) that do not lend
themselves to document creation. This substitution of smartphones for desktops will continue to
progress as input methods evolve (e.g., vocal inputs such as Siri on the iPhone) and with the
growth of cloud-based storage. The cloud-strategy is great for consumers as they are able to push
their costs into networked drives and processors, letting the relatively cheap devices in their hand
simply connect to these superpowered hubs.

David Berglund
Accounting 601 Kalina
Company Financial Analysis Intel

However, this effort to enter the mobile space is not as simple as marketing Intels current
products into these avenues because the microprocessors used in mobile environments are vastly
different than those in laptop and desktop computers. Microchips in the mobile space require
very high energy efficiency, which is something Intel chips have traditionally lacked. Intel has
long been known for developing super-fast chips that are able to process large chunks of data for
business and industrial use. Intels latest mobile line, based on the ATOM processor, has failed
to attract significant customers in part due to their late entry into the field and also because of
their paltry battery life (McWilliams, 2012).
To be successful in developing chips for tablets and smartphones Intel
will need to shift their production lines from high-powered processors to
low-powered processors capable of being used by smaller devices. A
major hurdle exists however, because Apple (the leader in mobile
technology) has thus far dominated the market with their products
running custom designed ARM chips. To take a strong foothold, would
Data: Gartner Says, 2012 require utilization of other mobile leaders such as Nokia (currently using
Ericsson) or for Operating systems such as Windows Mobile to require
the Intel chips. However, stockholders shouldnt necessarily start selling Intel stock based on this
weakness. Intel still retains a strong foothold over the data center processors, so even as
processing of data is shifted to the cloud, Intel will continue to derive profits no matter the
product in the consumers hand.
Manufacturer
Nokia
Samsung
Apple
ZTE
LG
Others

Gartner
23.4%
19.4%
7.4%
4.0%
3.6%
30.2%

2. Apple
Apple poses a threat to the whole electronics industry. Their knack for finding the next big
thing is a major reason why competitors in all of Information Technology need to maintain
strong Research and Development budgets ($2.4B in 2011). While Apple only makes up about
10% of the PC market, their movement into the smartphone market and tablet market allowed
them to bring in $26.74 B in Q1 of 2011, with over 50% of profits stemming from the iPhone
(Apple, 2011) and in Q2 2012 they had 75% of revenue from iPad and iPhone sales (Apple,
2012). Apple and Intel have had a somewhat precarious relationship, starting in 2005 when they
began running Intel on its Macintosh Tiger operating system. At that time, Steve Jobs stated
Our goal is to provide our customers with the best personal computers in the world, and looking
ahead Intel has the strongest processor roadmap by far (Apple, 2005).
While Apple does use Intel chips for its laptop and desktop PCs, its mobile chipmaker is ARM.
Recent trends in mobile devices have shown that ARM-based processors make up 73% of the
market (Poeter, 2012). Intels x86 chips (their mobile chips) command the lions share of the
laptop market, but Apples A5X chip is ARM-based and with every iPhone/iPad sold, Intel loses
a small piece of the market.
Intel is hoping for a renewed push into the mobile space with its system on a chip (SoC) that will
be able to run Googles Android mobile operating system. The problem is that ultra-low powered
ARM-based chips are already on the market and Intels first SoC products wont be available
until mid 2012 (Shah, 2012). The two primary reasons for this are the ultra-low power
requirements of ARM-based chips as well as the customizability of ARM-based chips for

David Berglund
Accounting 601 Kalina
Company Financial Analysis Intel

specific devices (e.g., iPhones). The question for Intel is how long it will take before they realize
that the mobile market isnt just shoving their high-powered chips into phones, but rather
architecting chips that are highly flexible and can run on limited power.
3. R&D Risk
Intel is deeply committed to R&D and their per-year expenditure proves it with $8.4B in 2011
(Intel Inc., 2011). High operating expenses due to Research and Development are expected in IT
and they have done a great deal with that investment, however, if future R&D does not align
with the consumer purchasing patterns, Intel could have a difficult time responding to the
mercurial change in consumer demands. Because there are very high up front R&D costs, one
could say that the first processor costs millions of dollars, and the next 1 million cost pennies on
the dollar because of the resources involved in their creation. In short, Intel must hope that the
efforts to get the factories running end up exciting customers, or theyll have millions of dollars
of silicon dust sitting on shelves.
Being agile in the microchip industry is nearly impossible. Luckily,
IBM
$6,258 Intel can predict with near 100% likelihood that one thing will
remain constant: consumers will demand more speed year after year.
Google
$5,162
One of the co-founders of Intel, Gordon Moore, boldly predicted in
Dell
$2,400
1965 that the number of components in integrated circuits would
Apple
$2,429
double every two years. Moores Law, as it has come to be called,
Hewlett-Packard
$3,254 has proven accurate and is widely used to set targets for
Intel
$8,350 semiconductor research and development. This heavy push towards
innovation has recently moved towards three dimensional processing (including Tri-Gate and Hik metal gate transistors) that Intel believes can be utilized in new products and form factors (Intel
Inc., 2011). As consumers demand increased efficiency, scalability, and security Intel plans to
continue using a tick-tock product delivery model where every two years a new
microarchitecture model is produced and off cycle products provide moderate improvements
(Intel Inc., 2011).
2011 R&D Expense (in millions)

The next major tick will occur in 2012 with the delivery of their 22 nanometer 3D microchips
(an improvement from the 2D 32nm models). This focus on keeping par with Moores Law
places a great deal of risk on the R&D segment of Intel. If one of Intels research initiatives fails,
or doesnt stay in alignment with the competition, they risk up to $8.4 B of operating expenses.
This risk is tempered somewhat by the fact that the only major competitor in their market is
AMD, but if consumer expectations move away from their form factors (e.g., a major shift to TV
computing) they risk spending R&D on processors that consumers dont want. Any loss of
revenue or a potential translation of products into real goods would ruin their next generation
of sales.
4. NVIDIA/AMD
NVIDIA and AMD are major competitors to Intel as they both create graphics processor units
(GPUs). With a combined market share of 49.5% they take on the same power as Intel who has

David Berglund
Accounting 601 Kalina
Company Financial Analysis Intel

49% of the market (which includes Intels integrated graphics solutions). If you only include
discrete GPU processors, AMD and NVIDIA make up nearly 100% of the total market
(Goodhead, 2011). Initially, AMD held on to the low-end market for laptop and desktop graphic
processors, but once Intel began encroaching on their space, AMD began developing highpowered units that could compete with Intels integrated chips.
A major change in the GPU industry was AMDs purchase of ATI who develops graphics cards
and graphics processors for high-end PCs. These cards are used primarily for gaming and video
production applications, but can be used for any computer process that requires graphical
response. Intels motherboards and chipsets are only compatible with Intel processors, except for
ATIs graphic cards, so Intels hopes to gain control in the graphic-intense market have become
increasingly difficult. However, because the cost of processors only constitute 10%-20% so any
changes in price would have a nominal impact on sales of processors.
If Intel were to attempt to restrict its processors compatibility to not work with AMD GPUs,
Nvidia video cards could be used, while AMD would no longer be supported. On the other hand,
if AMD tried to restrict its
compatibility, it would cede its
ATI base to use AMD
processors.
Lastly, as one of the two major
manufacturers of GPUs, Nvidia
is in a unique place to enter the
processor market with its new
Graphic: Kowaliski, 2008
Tegra platform, a low-powered system on a chip combining a CPU,
GPU, and memory controller into one small package. The Tegra platform has improved
NVIDIAs revenue, which came close to $4B last year (NVidia Inc., 2012). It has strong brand
recognition after its first successful Tegra launch in 2009 and since then, it has continued to
expand into the mobile market with companies such as Microsoft, Dell, Samsung and Google all
developing products on the Tegra SoC (NVidia Tegra, 2012). These product advancements show
that the threat to Intel remains strong until Intels integrated graphics cards are able to compete
with the discrete Tegra line of processors (Niu, 2012). One AMD spokesman told PCMAG (the
largest computing magazine) that Intel has a powerful core, but just a bare minimum of graphics
and that's not good enough (Poeter, 2011, May 6). NVIDIAs threat to Intels bottom line
remains nominal, however, as most consumers do not need the graphics performance of a GPU
when running any app on a mobile device and even on laptops the most common computing
tasks such as web browsing, email, and word processing can be performed with a relatively lowpowered chip.
5. Developers
All of the work Intel has done developing blazing fast processors and SoCs is essentially for
naught if developers do not write code to support them on applications people use. With the

David Berglund
Accounting 601 Kalina
Company Financial Analysis Intel

latest 22-nanometer microchips, Intel will have a performance lead on AMD by several months,
but mobile OS developers will still have to decide if spending time learning the functional
requirements of the system to develop new software is a smart investment when they are already
writing code for ARM-based chips (the far-and-away leaders in the mobile space).
For the most part, software developers need to choose the platform on which they want their
software to run: ARM or Intel. There isnt a simple code translation they can use to get their apps
running on any device. The option, really, is to stop writing code for ARM products (i.e. the iPad
and iPhone) in hopes that the increased performance brought by 22-nanometer chips will tempt
consumers to the software. If developers believe that the increase in Intels speed is only
temporary (again, possibly a few months), why wouldnt they just wait for ARM chips to get up
to speed instead of risking Intels product successes in a market where it is still unproven
(Poeter, 2011, May 6)? That being said, cross-platform development isnt impossible, as seen by
Dalvik, a cross-platform OS built on Google Androids Ice-cream Sandwich that is capable of
being run on either Intels x86 or ARM devices.
One of the biggest hopes for Intel is that the new multi-platform Windows 8 OS will be a hit
with consumers. It is capable of running on tablets or phones and developers are already starting
to showcase the new apps they plan to build. It is clear then, that even as Intel pushes its R&D
arm to deliver faster and smaller chips for mobile products, its competitors will continue to move
forward as well forcing developers to decide which platform they believe will prevail.

Section 3 Ethical issues facing the company

Ethics can be viewed under numerous lenses, among which are External/Internal
Communications and Standards, Environmental Initiatives, and Anti-Competitive Behavior.
1. External/Internal Communications and Standards
In 1994, Intel faced a major crisis when Professor Thomas R Nicely from Lynchburg College
uncovered a floating-point error in its wildly successful Pentium processor. There was an error
occurring on certain division operations causing the eighth significant digit to be incorrect
(Williams, 1997). While this is an incredibly small rounding error, and one not likely to ever be
an issue for most consumers, it was Intels response and cover-up that caused a huge backlash
against Intel. Intel responded by saying that nontechnical people would never find it to be a
problem (Williams, 1997).
After Professor Nicely attempted to inform Intel of this error and was brushed off (over several
months of effort on Nicelys part), the trade publication Electrical Engineering Times wrote an
article describing the errors. At that time, Intel remarked that it was aware of the issue and had
been working on finding a solution they could push out to computers through patches. Soon
after, major news outlets began reporting the issue including CNN, the New York Times and the
Boston Globe. Then CEO Andy Grove decided against a mass recall and instead required
consumers to request and be approved for a replacement chip.

David Berglund
Accounting 601 Kalina
Company Financial Analysis Intel

Intel Mission Statement:

Delight our customers, employees, and
shareholders by relentlessly delivering
the platform and technology
advancements that become essential to
the way we work and live.

(Intel, General Company Information, 2012)

Many articles at the time were written on Intels poor

crisis management and public relations, but few on the
ethical ramifications of this event (Williams, 1997).
This is somewhat surprising seeing as though Grove
was quoted as saying Finally we decided, this is the
right thing to do, both morally and ethically, clearly
showing Intels understanding of the ethical
imperatives it had compromised (Markoff, 1994).

According to Intels Code of Conduct, their framework for ethics is built on three key elements:
a mission statement, clearly defined shared values, and its code of conduct (Intel, 2012a). The
mission statement doesnt speak to ethics per say, but does make it clear that customers,
shareholders and employees are put first in managements eyes. The unwritten assumption here
is that if Intel is able to consider these groups in any transaction or endeavor, their outcome will
be ethically sound.
Viewing the crisis Intel faced in 1994 through the lens of todays information glut, it is clear that
Intel would have been pushed to act much more quickly than they did, taking over two months to
recognize their mistake and compensate consumers fairly. With ready information access via
Twitter and Facebook, businesses must be prepared at all times to respond to customer
complaints. This response must be both swift and equitable or they risk a major public relations
crisis like Intel faced in the winter of 1994. In the world of information technology, mistakes are
inevitable, but with Intels framework of mission, values and code of ethics, they should be more
prepared to respond appropriately to future processor flaws.
2. Environmental Initiatives
Environmental awareness for companies is one of the most important components of an ethical
foundation with sustainability and green efforts being ever-popular buzzwords in the media. In
2012 the EPA ranked Intel number one on its list of Green Power Partners after it increased its
use of renewable resources (including solar and wind) from 1.4 billion to 2.5 billion kilowatt
hours (Green, 2012). This is comparable to the energy output of 195,000 American homes
clearly a major energy reduction and a strong reason for their award (U.S. Environmental
Protection Agency, 2011). These investments in renewable energy have paid off for Intel,
reducing energy costs on average by $23 million since 2001 (Green, 2012).
In 2010 Intel was in the number four spot in Newsweeks Green Rankings for U.S. Companies,
but its ranking fell in 2011 to number 47 even though it has been the largest purchaser of green
power in the US for the third straight year (From Newsweek, 2011). The EPA views Intel as a
leader in environmental stewardship as well, providing them with the Green Power Leadership
Award 2010, Partner of the Year 2008, Partner of the Year 2009, and Partner of the Year 2011
(U.S. Environmental Protection Agency, Green power partnership, n.d.). This should come as no
surprise, seeing as though 87.8% of their power is deemed Green Power. Their ability to meet
and exceed intensity-based reduction with a reduction of 49.1% per unit of production since
2004 has come at fairly steep cost. Intel has spent more than $45M on energy saving technology

David Berglund
Accounting 601 Kalina
Company Financial Analysis Intel

while saving upwards of 790 million kWH of energy in the process (U.S. Environmental
Protection Agency, 2012).
Intel President and CEO Paul Otellini says, Our renewable purchase is just one part of a multifaceted approach to protect the environment, and one that we hope spurs additional development
and demand for renewable energy (Intel Inc., 2008). In addition, Sustainable Business further
honored Intel for their work in Aggressively Reducing Emissions showing the high-regard they
receive from major environmental organizations (SustainableBusiness.com, 2012).
Intel is continuing to move forward and invest in clean technology through smaller
entrepreneurial start-up companies focused on green-tech. Included in their list of recent
acquisitions or funded clean-tech firms such as an energy management provider (CPower), home
energy monitoring (iControl), and low-power computing (Powervation) (Intel Inc., 2009). Intels
investment arm is also overseeing a $3.5B clean-tech investment fund through which it plans to
continue finding and supporting young green entrepreneurs (Kanellos, 2010).
3. Anti-Competitive Behavior
In 2009 Intel faced major heat from the FTC when it was charged with anticompetitive tactics
and that it engaged in a deliberate campaign to hamstring competitive threats to its monopoly
(U.S. Federal Trade Commission, 2009). This case was settled in 2010 when Intel was required
to restructure its intellectual property agreements with AMD and NVidia, offer licensing of its
components to competitors, maintain an open interface (PCI Express Card) for competitor GPU
units and was banned from creating future exclusivity agreements with other chipmakers.
This was just one of several anti-competitive suits it faced over the last decade and while it likely
paid off from a financial perspective, its name was still brought through the mud for several
years. Other antitrust charges it faced and lost include a 2009 EU fine of $1.45B, $1.25B fine
paid to Intel, and in 2011 it paid $1.5B to NVidia (Mick, 2012).
The last of the open charges was New York States case against Intel from 2009 that charged
Intel with anticompetitive tactics, specifically using illegal tactics to stifle AMD in the processor
market (Hill, 2009). These charges were cleared in February of 2012 with Intel facing a nominal
$6.5M fine. Whether or not Intel will be able to move forward without additional claims of
anticompetitive behavior or intellectual property infractions will be seen, but it is unlikely. In the
interim, Intel continues to claim that they compete lawfully and that [their] marketing, business,
IP, and other challenged practices benefit [their] customers and [their] stockholders and plan to
continue vigorously defending future charges that might come up (Intel Inc., 2012b).

Section 4 Financial Analysis1

To analyze Intel, you must first realize the broader markets in which it lives. The DJIA is slowly
making its way back to where it was five years ago when the markets began unraveling and from

1 All numbers, unless state otherwise, are in millions of dollars.

David Berglund
Accounting 601 Kalina
Company Financial Analysis Intel

the three-year mark, the DJIA is up almost

Intel & AMD Revenue 2002-2011
61%. A major grouping of stocks watched
60,000
closely by financial analysts is the
technology sector where Intel sits at the
45,000
top of most reports. That sector can then be
broken down into multiple smaller buckets, 30,000
of which is the Broad Line Semiconductor
15,000
grouping that also includes AMD,
0
NVIDIA, and Texas Instruments. This is
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
commonly tracked on Wall Street via the
AMD
Intel
Philadelphia Semiconductor Sector (ticker:
SOX), an index composed of companies within the industry. While the global markets continue
to be uncertain and unstable, the semiconductor industry is on a financial uptick after several
quarters of lower sequential sales - due in large part to the natural disasters that affected supply
chains in Thailand and Japan (Rubin, 2012).
Intel has been at the forefront of this market, outperforming its primary rival AMD and
dominating the rest of the field. Intels net income for 2011 was $12,942M, a strong 13%
improvement from its net income of $11,464M in 2010. An even more impressive increase is the
196% improvement from 2009, where Intels net income was $4,369M. These numbers compare
favorably to AMD who brought in a relatively meager $491M in net income during 2011.
Intels fundamental business strategy is based on product differentiation and successfully
producing cutting edge products. To meet that end, it invests heavily in itself through Research
and Development expenditure (as discussed in section 2.3). Its success in creating and selling top
of the line semiconductors and microprocessors is evident through its 2011 net profit margin of
23.97%. The only other company in the field with such strong numbers is the up and coming
ARM Holdings with a 2011 net profit margin of 22.90% (Google, 2012a).
From a quarterly perspective, Intels 2011 Q4 net
income was $3,360M, a reduction of 3% over its Q3
$12,942 $11,464
$4,369
net income of $2,954M. The earnings report for
$53,999 $43,623
$35,127
Intels Q1 2012 results came on April 17, 2012 and
they showed first quarter net income of $2.7B which
23.97%
26.28%
12.44%
is down 19% from Q4s $3.4B. CEO Paul Otellini
remarked The first quarter was a solid start to what's expected to be another growth year for
Intel. He heralded the major release of several technologies for Q2 including the first Intelbased smartphones, the 22nm tri-gate Ivy Bridge chipset, and the best server product ever
which are hoped to provide strong
numbers in the upcoming quarters (Intel
2011
2010 Difference
Inc., 2012b).
Net income
$12,942
$11,464
$1,478
2011

2010

2009

After Tax
Net Income
Revenue
Net Profit
Margin

Total assets

$71,119

$63,186

$7,933

AMD reported a net loss of -$177M for

Average Total Assets
$67,152.50
Q4, a substantial 282% reduction over
ROI:
19%
its Q3 earnings ($97M) due, in large
part, to weaker than expected sales from the graphics segment. As predicted by AMD leadership,

David Berglund
Accounting 601 Kalina
Company Financial Analysis Intel

AMD announced a major step back with a $590M net loss in Q1 of 2012. Based on these
numbers, it is clear that despite the economic instability of America, Intel has been able to
produce strong numbers while AMD has not. This financial outcome could be a predictor of
things to come. In addition, business leaders may want to hedge their finances by bolstering the
growing mobile segment as GPU unit sales slow down.
Intels total assets for 2011 were
$71,119M, a 13% improvement over its
Net income
$3,360
$3,468
($108)
2010 total assets of $63,186M. The
Total assets
$71,119
$70,551
$568
quarterly improvement was a less profound
Average total Assets $68,320
improvement of 7% with the Q3 total assets
ROI:
5%
reported at $70,551M and Q2 total assets of
$66,089M. AMD did not fare as well over this time period with its negative net income bringing
its total assets down from $5,236M in Q3 to $4,954M in Q4, a 5.4% decrease over the period.
Based on these figures, Intels ROI over 2010-2011 was 19%, approximately double AMDs
ROI of 10% over the same period. From a quarterly basis, Intels Q4 ROI was 5% and AMDs
Q4 ROI was -3.47%, again showing Intel commanding the semiconductor market not just based
on market penetration but also from a profitability perspective as well.
Q4 2011

Q3 2011

Difference

In terms of liquidity, Intels quick ratio of 1.81 is slightly higher than AMDs 1.55. Similar to
most companies, Intels primary source of liquidity is cash generated from operations and with a
solid cash reserve of $5,065M, inventory valuation of $4,096M (FIFO basis) and a current ratio
of 2.15 there is little risk of Intel defaulting on its obligations.
Quick Ratio Comparison:
Intel
Total current assets
Inventories
Total current liabilities
Quick Ratio
Current Ratio

AMD
25,872
- 4,096
21,776
12,028
1.81
2.15

Total current assets

Inventories
Total current liabilities
Quick Ratio
Current Ratio

3,229
- 476
2,753
1,774
1.55
1.82

Intels 2011 Return on Equity Ratio is 27%, slightly lower than AMDs ROE of 38%, but above
other companies in the semiconductor and microprocessor field who average 11.25% ROE
according to Google Finances related-company calculations (Intel Inc., 2012). Intel had a $4M
reduction in SE over the 2011 period while AMDs SE increased by 57%. The 27% ROE is a
slight improvement over its 25.6% ROE for 2010 and a huge jump over its 2009 ROE of 10.8%
(Standard and Poors, 2012).

David Berglund
Accounting 601 Kalina
Company Financial Analysis Intel

Return on Equity Comparison:

Intel Stockholder Equity
As of:
12/31/11
45,911
Net Income
Ave SE
Return on Equity:

AMD Stockholder Equity

As of:
12/31/11
1,590

12/25/10
49,430

12,942
47,671
0.27

Net Income
Ave SE
Return on Equity:

12/25/10
1,013

491
1,302
0.38

Another important financial

comparison to make between Intel
R&D Expense
$ 8,350
$ 6,576
$ 5,653
and AMD is Research and
Net Revenue
$ 53,999
$ 43,623
$ 35,127
Development investment as a
R&D as Percent of Net
percentage of both operating and
Revenue
15%
15%
16%
net income. These ratios are
valuable when analyzing tech companies who require the ability to successfully deliver new
products year after year. In both cases, Intels percentages are far and away lower than AMDs
even though Intel had such large R&D costs. This was due primarily to the vast difference in
income that the two companies achieved in 2011. It is important to realize that revenues typically
realized from R&D take several years due to the time it takes to bring chips to market. Intel has
done a great job keeping their R&D as a percent of net revenue around 15% over the last three
years while improving revenue in each of the successive years. While we dont have the numbers
on what segments of the business Intel is spending their R&D budgets on, based on the numbers
we can see that Intel has been much more successful in converting their sizable R&D investment
into future sales.
2011

Research and Development Expense

Operating Income
Net Income
R&D as % of Operating income
R&D as % of Net Income

2010

Intel
$8,350
$17,477
$12,942
48%
65%

2009

AMD
$1,453
$368
$491
395%
296%

Section 5 Conclusion
By and large Intel is in a favorable position in comparison to other companies in its industry. It
dominates almost all the major markets and its raw size is able to discourage future competition.
Intel has demonstrated proficiency capitalizing on new product development stemming from a
robust R&D arm and operational capability and has a wide berth of platforms through which is
can bring in revenue. As is the case for all tech companies, there is the potential for future
litigation costs related to intellectual property and patents but Intel has been able to put all of the
major anti-trust litigation behind them.
Intel also has a strong balance sheet and high income per year, putting it in a strong competitive
position despite the challenges of entering the mobile niche markets. A vertical analysis of their
balance sheet (figure 10) reveals only modest fluctuations over time, with the greatest changes
over time being the gradual shift in assets from mostly non-current to current. Intels income

David Berglund
Accounting 601 Kalina
Company Financial Analysis Intel

statement shows a slight uptick in cost of sales as a percent of net revenue (figure 11), but it is
still down from its 2008 numbers. As Intel looks forward, it can surely see a growing PC market
stemming where consumers will likely increase their purchases of PCs as the new Windows 8
operating system rolls out shortly. Additionally, there is the potential for massive growth in
revenue if it can successfully enter the fast-moving mobile space. Even through the global
economic slowdown and rapid technological movement of processing power to the cloud, they
have been able to (mostly) shift their product focus to smaller and lighter chips that are in high
demand with consumers. Their ability to continue winning over the mobile markets (including
consumers, developers, and
From an investors standpoint, Intels stock price of $27.76 is a very strong improvement over its
$21.94 price one year ago. Financial analysts are divided from a buy/hold/sell standpoint and it is
no wonder, given Intels potential for huge rewards as well as the risk it is taking entering the
mobile market. My recommendation would be buy, based on Intels strong brand image and
reputation for delivering strong and stable processors that will allow them to convince phone and
tablet makers to incorporate its chips in future products. Furthermore, I believe that the larger
economic landscape will continue to improve, allowing consumers to have more disposable
income, thus increasing sales of tech products. If Intel is able to continue navigating the turbulent
post-PC market as well as their bread and butter PC chips, they will surely find their stock price
higher still.

David Berglund
Accounting 601 Kalina
Company Financial Analysis Intel

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Accounting 601 Kalina
Company Financial Analysis Intel

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Accounting 601 Kalina
Company Financial Analysis Intel

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David Berglund
Accounting 601 Kalina
Company Financial Analysis Intel

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Note: David Berglund has followed this industry for several years so certain pieces of knowledge were gleaned from
first-hand experience and personal research.

David Berglund
Accounting 601 Kalina
Company Financial Analysis Intel

Additional Figures

Figure 1:
INTEL

2010-2011
Difference

2011

2010

2009

Net income

$12,942

$11,464

$4,369

$1,478

Total assets

$71,119

$63,186

$53,095

$7,933

2011

2010

2009

Net income

$491

$471

$293

$20

Total assets

$4,954

$4,964

$9,078

-$10

Average Total Assets

$4,959

Average Total Assets

$67,152.50

ROI:

19%

Figure 2:
AMD

ROI:

2010-2011
Difference

10%

Figure 3:

Intel ROI

Q1 2011

Net income

Q2 2011

$3,160

Total assets
Ave total assets (Q4)

$70,835

ROI Q4:

4.74%

Q3 2011

Q4 2011

$2,954

$3,468

$3,360

$66,089

$70,551

$71,119

Figure 4:
Q1 2011

Q2 2011

Q4 2011

Net income

$510

$61

$97

$(177)

Total assets

$5,209

$5,224

$5,236

$4,954

Ave total assets (Q4)

$5,095

ROI Q4:

-3.47%

Figure 5:

Q3 2011

Net Income
Year
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002

AMD
$6,568
$6,494
$5,403
$5,808
$6,013
$5,649
$5,848
$5,001
$3,519
$2,697

Intel
$53,999
$43,623
$35,127
$37,586
$38,334
$35,382
$38,826
$34,209
$30,141
$26,764

Total Assets
AMD
$4,954
$4,964
$9,078
$7,675
$11,550
$13,147
$7,288
$7,844
$7,094
$5,619

Intel
$71,119
$63,138
$53,095
$50,715
$55,651
$48,368
$48,314
$48,143
$47,143
$44,224

David Berglund
Accounting 601 Kalina
Company Financial Analysis Intel

Figure 6:
Intel & AMD Total Assets 2002-2011
$80,000

$60,000

$40,000

$20,000

$0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

AMD

Intel

Figure 7:

Screen capture taken from Standard & Poors stock report (3/31/12).

Figure 8:
Intel and AMD Stock prices in comparison to Nasdaq, as captured from Google.com/finance on 5/01/12.

David Berglund
Accounting 601 Kalina
Company Financial Analysis Intel

Figure 9:

Screen capture Taken from Google.com/finance on 5/2/12.

Figure 10:

% of Net
Revenue

$260
$16,280

0.00
0.30

$18
$12,903

0.00
0.30

$35
$13,850

0.00
0.39

Operating income
Gains (losses) on equity
investments, net
Interest and other, net
Income before taxes
Provision for taxes
Net income
Basic earnings per common
share
Diluted earnings per common
share
Weighted Average common
shares outstanding
Basic
Diluted

$17,477

0.32

$15,588

0.36

$5,711

0.16

$112
$192
$17,781
$4,839
$12,942

0.00
0.00
0.33
0.09
0.24

$348
$109
$16,045
$4,581
$11,464

0.01
0.00
0.37
0.11
0.26

$(170)
$163
$5,704
$1,335
$4,369

0.00
0.00
0.16
0.04
0.12

0.14

$6,309

0.35
0.65
0.15

2009
$35,127
$15,566
$19,561
$5,653

0.14

$7,931

% of Net
Revenue

2011
$53,999
$20,242
$33,757
$8,350
$7,670

0.37
0.63
0.15

2010
$43,623
$15,132
$28,491
$6,576

% of Net
Revenue

Income Statement
Net Revenue
Cost of sales
Gross margin
Research and development
Marketing, general and
administrative
Restructuring and asset impairment
charges
Amortization of acquisition-related
intangibles
Operating expenses

$2.46

$2.06

$0.79

$2.39

$2.01

$0.77

5256
5411

5555
5696

5557
5645

0.44
0.56
0.16
0.23
-

David Berglund
Accounting 601 Kalina
Company Financial Analysis Intel

Figure 11:

2011

%
Total
Assets

Cash and Equivalents

$5,065

0.07

$5,498

0.09

$3,987

0.08

$3,350

0.07

Marketable Securities

$9,772

0.14

$16,387

0.26

$5,285

0.10

$5,331

0.11

Accounts Receivable

$3,650

0.05

$2,867

0.05

$2,273

0.04

$1,712

0.03

Receivables

$3,650

0.05

$2,867

0.05

$2,273

0.04

$1,712

0.03

$644

0.01

$471

0.01

$437

0.01

$608

0.01

Work in Progress

$1,680

0.02

$1,887

0.03

$1,469

0.03

$1,577

0.03

Finished Goods

$1,772

0.02

$1,399

0.02

$1,029

0.02

$1,559

0.03

Inventories
Current Deferred Income
Taxes
Other Current Assets

$4,096

0.06

$3,757

0.06

$2,935

0.06

$3,744

0.07

$1,700

0.02

$1,488

0.02

$1,216

0.02

$1,390

0.03

Balance Sheet - Assets

Raw Materials

2010

%
Total
Assets

2009

%
Total
Assets

2008

%
Total
Assets

$1,589

0.02

$1,614

0.03

$5,461

0.10

$4,344

0.09

Total Current Assets

$25,872

0.36

$31,611

0.50

$21,157

0.40

$19,871

0.39

Land & Improvements

Machinery, Furniture &
Equipment
Construction in Progress

$17,883

0.25

$17,421

0.28

$16,687

0.31

$16,546

0.33

$34,351

0.48

$30,421

0.48

$28,339

0.53

$28,812

0.57

$5,839

0.08

$2,639

0.04

$2,796

0.05

$2,730

0.05

Total Fixed Assets

Gross Fixed Assets (Plant,
Prop. & Equip.)
Accumulated
Depreciation & Depletion
Net Fixed Assets (Net
PP&E)
Intangibles

$58,073

0.82

$50,481

0.80

$47,822

0.90

$48,088

0.95

$58,073

0.82

$50,481

0.80

$47,822

0.90

$48,088

0.95

$34,446

0.48

$32,582

0.52

$30,597

0.58

$30,544

0.60

$23,627

0.33

0.28
*

$17,225
*

0.32
*

$17,544

$6,267

0.09

$17,899
*

$775

0.35
0.02

Cost in Excess

$9,254

0.13

$4,531

0.07

$4,421

0.08

$3,932

0.08

Other Non-Current Assets

$6,099

0.09

$9,145

0.14

$10,292

0.19

$8,593

0.17

Total Non-Current Assets

$45,247

0.64

$31,575

0.50

$31,938

0.60

$30,844

0.61

Total Assets

$71,119

1.00

$63,186

1.00

$53,095

1.00

$50,715

1.00