Financial Analysis of Intel Corporation

Intel Corporation was derived from the term integrated electronics. Founded in July 1968, semiconductor pioneers Gordon Moore and Robert Noyce were able to establish what is today’s world’s second highest valued and the second largest semiconductor chip manufacturer by revenue (IC Insights, 2018). Over 102 thousand people worldwide were under Intel’s payroll in 2017, enabling the company to report a 62.8-billion-dollar global annual revenue in 2017 ("Intel 2017 Online Annual Report", 2017). Over the past ten years, the company enjoys a secured 15% share of the market, along with top competitors like Samsung Electronics, Micron Technology, Toshiba, Qualcomm, SK Hynix, Broadcom, and Texas Instruments (Gordon, 2018). However, Intel does not operate with impunity as the company’s stocks face financial dilemmas originating from product safety issues (Aiello, 2018).

Financial Analysis 

According to Intel’s 2017 Annual Report, the company was able to successfully meet their goals as it reports a 6% increase in annual revenue from 2016 ("Intel 2017 Online Annual Report", 2017). In 2016, Intel recorded a 59.4 billion revenue ("Intel 2016 Online Annual Report", 2016), which increased to 62.8 billion in 2017. This was amidst controversies surrounding product delays and product safety issues which were raised in the last quarter of 2017. Based on the key performance indicators, Intel is not doing very well relative to the trend in the industry. Specifically, Intel’s current liquidity ratio is significantly lower than most semiconductor manufacturers after the company reports a 1.57 current liquidity ratio ("Financial Highlights: Intel Corp.," 2018) versus the industry’s 2.29. However, this data is still considered more favorable than Texas Instruments Corp. which reports a 6.54 liquidity current ratio ("Financials Highlight: Texas Instrument Corporation," 2018) indicative that they are unable to use their assets productively ("Financials Highlight: Texas Instrument Corporation," 2018). Intel’s leverage total debt to equity ratio is also not also looking optimistic for the company considering the very high debt-to-equity ratio of 35.6 ("Financial Highlights: Intel Corp.," 2018), compared to the industry’s 11.63. This could be the result of the decrease in the stock values of Intel which prevents the company from generating enough cash to square off their debts. But compared to Texas Instrument Corp whose debt-to-equity ratio is 47.64. Finally, the return on asset, which is indicative of the company’s profitability shows that Intel is still profitable compared to the overall semiconductor manufacturing industry. For investors, an ROA of 14.92 ("Financial Highlights: Intel Corp.," 2018) is still taken favorably compare to the industry’s 3.05. However, in this case, Texas Instrument Corp is still performing better compare to Intel as it reports an ROA of 25.25 ("Financials Highlight: Texas Instrument Corporation," 2018).

Key Issues 

Intel Corp. released a chip at the beginning of 2018, believing that it will support the favorable performance of the company in 2017. However, the company was surprised when issues started to surface regarding the susceptibility of the chip to security risks. There were reasons to believe that the bug affecting Intel chips may allow specific software to access the computer’s memory and retrieve sensitive information like passwords. While patches to fix the issue had been developed, targeting Microsoft’s Windows and Apple’s OS X computers with Intel chips, many analysts still think that this will not guarantee a solution to the problem. The security updates or patches may reduce the speed of the older machines by at least 30% (King & Cao, 2018). Intel pointed out that based on the information gathered by their security research group, a software analysis method that is used for a malicious purpose may collect sensitive data stored in the computer’s memory ("Intel Responds to Security Research Findings," 2018).

Causes of the Issue 

Former Intel CEO Brian Krzanich argues that the bug on Intel chips is not unique to the company alone. Krzanich stated that the industry had been plagued with the same problem and efforts had already been exhausted to find a solution to the problem. While it is easier said than done, Krzanich noted that technology engineers and architects are collaborating on identifying the cause of the problem. The Meltdown and Spectre flaws that were found in Intel processors allow third parties to steal sensitive information like passwords which are stored in the computer’s memory (King & Cao, 2018). A discovery found that the chip also has a “return-to-speculation vulnerability,” caused by the CPU’s ability to predict a return address for runtime optimization (Sandle, 2018).

Impact of the Issue 

The uncertainties and the risks presented by Intel’s product had a significant impact on the value of Intel shares in the market. Investors became leery that Intel can find a solution to the problem that would be permanent. In fact, in June 2018 Northland Capital Markets lowered their rating on Intel shares (INTC) and classified that company as “underperforming” because of significant and steady drop that has been recorded over the past couple of months (Kim, 2018). In July of 2018, Intel CEO resigned because of allegations infraction of the firm's nonfraternization policy thereby resulting to a significant drop in the price of Intel stock from $54 per share to $42 (Delventhal, 2018).

Recommendation 

The change in leadership may bring some positive results to help the company recover. The new CEO may have some plans to address the current problem that Intel is facing. The scandal that confronted former Intel CEO Brian Krzanich may have affected his management skills and the morale of the company. Also, to help resolve the technical problems that Intel is facing the management should show the public, especially the investors, that they are conducting aggressive campaigns to identify the root of the problem. Masking the problem with a temporary solution like patching would only leave the impression that the code developed to fix the problem temporarily may again be compromised. Furthermore, Intel should also set realistic benchmarks that they can meet to show investors that there is progress, regardless of how slow and how little it may be rather than nothing.

References 

Aiello, C. (2018). Intel plunges on product delays and fears it's losing a near 'monopolistic position'. Retrieved from https://www.cnbc.com/2018/07/27/intel-plunges-on-competition-concerns-product-delays.html

Delventhal, S. (2018). Why Intel Stock May Plunge 15% Further. Retrieved from https://www.investopedia.com/news/why-intel-stock-may-plunge-15-further/

Financial Highlights: Intel Corp. (2018). Retrieved from https://www.reuters.com/finance/stocks/financial-highlights/INTC.OQ

Financials Highlight: Texas Instrument Corporation. (2018). Retrieved from https://www.reuters.com/finance/stocks/financial-highlights/TXN.OQ

Gordon, K. (2018). Intel - Statistics & Facts. Retrieved from https://www.statista.com/topics/1877/intel/

Intel 2016 Online Annual Report. (2016). Retrieved from https://s21.q4cdn.com/600692695/files/doc_financials/interactive/2016/index.html

Intel 2017 Online Annual Report. (2017). Retrieved from http://intel2018or.q4web.com/Y2017/default.aspx

Intel Responds to Security Research Findings. (2018). Retrieved from https://newsroom.intel.com/news/intel-responds-to-security-research-findings/

Kim, T. (2018). Intel shares fall after small Wall Street firm downgrades chipmaker, predicting slower growth. Retrieved from https://www.cnbc.com/2018/06/18/intel-shares-fall-after-small-wall-street-firm-downgrades-chipmaker-predicting-slower-growth.html

King, I., & Cao, J. (2018). Intel Confronts Potential ‘PR Nightmare’ With Reported Chip Flaw. Retrieved from https://www.bloomberg.com/news/articles/2018-01-03/amd-soars-after-rival-intel-said-to-reveal-processor-flaw

Sandle, T. (2018). New security flaw with Intel processors. Retrieved from http://www.digitaljournal.com/tech-and-science/technology/new-security-flaw-with-intel-processors/article/529077

Thirteen Top-15 1Q18 Semi Suppliers Register Double-Digit Gains. (2018). Retrieved from http://www.icinsights.com/news/bulletins/thirteen-top15-1q18-semi-suppliers-register-doubledigit-gains-/ 

Appendix A 

SWOT Analysis

Source: 

https://image.slideserve.com/1150967/intel-swot-n.jpg

Appendix B 

Updated SWOT Analysis 

Strength  Change in management (Delventhal, 2018).  Design expertise ("Intel 2017 Online Annual Report", 2017)  Reliable R&D ("Intel 2017 Online Annual Report", 2017)  Limited cost of production  ("Intel 2017 Online Annual Report", 2017)	Weakness  Decreasing value of shares  (Delventhal, 2018; Kim, 2018).  Negative perception of investors due to slow recovery (Kim, 2018).
Opportunity  Expanding new market ("Intel 2017 Online Annual Report", 2017)  Consumer electronics  Graphics  Global expansion ("Intel 2017 Online Annual Report", 2017)  Bigger demands due to expanding market ("Intel 2017 Online Annual Report", 2017)	Threat  Security flaws in computer chips  Meltdown and Spectre flaws (King & Cao, 2018)  Speculative Store Bypass Variant 4 (Sandle, 2018).  Cyclical downturn (Sandle, 2018).  Stiff competition ("Intel 2017 Online Annual Report", 2017)

Appendix C 

Financial Analysis 

	Intel Corp	Texas Instruments Inc	Industry
Liquidity Current Ratio	1.57	6.54	2.29
Leverage Total Debt to Equity Ratio	35.16	47.64	11.63
Profitability Return on Assets Ratio	14.92	25.25	3.05

Source: 

Financial Highlights: Intel Corp. (2018). Retrieved from https://www.reuters.com/finance/stocks/financial-highlights/INTC.OQ

Financials Highlight: Texas Instrument Corporation. (2018). Retrieved from https://www.reuters.com/finance/stocks/financial-highlights/TXN.OQ