Cisco Systems, Inc. (CSCO), International Business Machines Corp. (IBM) & Intel Corporation (INTC): A Fundamental Perspective of Three Giants of the Technology World

A fundamental perspective of Intel

Intel Corporation (NASDAQ:INTC) designs and manufactures integrated digital technology platforms consisting of a microprocessor and chipset, and develops and sells software and services primarily focused on security and technology integration.

Intel Corporation (NASDAQ:INTC) reported revenue and net income of $53.34 billion and $11 billion, respectively, in 2012. Over 2009, this is great growth of 52% and 152% in revenue and net income, respectively, but compared with 2011, this is a decline of 1.2% and 15%, respectively. The net profit margin has expanded significantly from 12.44% in 2009 to 20.63% in 2012.

However, more recent trends indicate contracting margins. In the latest quarter, revenue and net income declined 2.5% and 25.30%, respectively. Muted performance was mainly due to significantly lower sales in the PC market. Intel Corporation (NASDAQ:INTC) is trading at 2.18 times sales and the trailing and forward P/E multiples are nearly the same at around 11.5 times. Cash is $17.07 billion, and the debt-equity ratio is 25.85. The five year average dividend yield is 3.5%.

Recent performance of all the three companies indicates that the growth has slowed down significantly over the past year and the margins are contracting. All the companies are trading at reasonable valuations, but expectations for future growth are not very high. This is evident from the marginal difference between TTM and forward P/Es, especially in the case of Intel Corporation (NASDAQ:INTC). Further, Intel’s margins have declined significantly in the last quarter. Its dependence on PC sales, which is a fast shrinking market, makes it a relatively risky bet.

Leverage of International Business Machines Corp. (NYSE:IBM) is relatively high and the growth is less as compared with the others. Cisco Systems, Inc. (NASDAQ:CSCO) has shown more secular growth over the years and margins are also holding up. All these factors give Cisco a more balanced risk-reward ratio. However, growth in the sector is directly related to increased spending by Governments and the private sector, which, in-turn, is dependent on the turnaround in the world economy. Innovation is also important, especially in view of the dying PC market. Subject to improvement in these factors, the long-term outlook remains positive for Cisco Systems, Inc. (NASDAQ:CSCO).

The article A Fundamental Perspective of 3 Giants of the Technology World originally appeared on Fool.com.

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