Intel Corporation (INTC), Advanced Micro Devices, Inc. (AMD), And Questions That Need Answers

Intel produced what I call “core operating cash flow” (net income + depreciation) of $3.727 billion in the last quarter. What is disconcerting is, this was down 9.3% from last year. By comparison, ARM’s core operating cash flow was up 48.08% in the last year. While AMD reported negative operating cash flow, even Texas Instruments Incorporated (NASDAQ:TXN) outperformed Intel with a drop of 5.94%.

If we look at core free cash flow (net income + depreciation – capital expenditures), Intel’s payout ratio is 71.73%. This leads us to question number four. If Intel Corporation (NASDAQ:INTC) is such a great dividend play, how can the company increase the yield, when the payout already exceeds 70%?

One final question
In light of all of these challenges, the final question is, do you believe in Intel’s management? If you believe in the company, this is a blip on the radar. If you have questions, what about other stocks? I know some would suggest ARM Holdings plc (ADR) (NASDAQ:ARMH) is a better alternative, but at 45 times 2013 estimates and almost 35 times 2014 estimates, ARM is too rich for my blood.

Advanced Micro Devices, Inc. (NYSE:AMD) has been, and seemingly will be, the red headed step child to Intel. The company faces Intel’s same challenges, but has no data center strength to fall back on. You can boil AMD’s problems down to one comparison. In the last quarter, the company made $1.235 billion in gross profit, and spent $1.354 billion on R&D. When you can’t afford your R&D, the stock won’t go far.

Texas Instruments Incorporated (NASDAQ:TXN) would be a good choice at a lower price. The stock pays a nice 3.27% yield, but a 7.67% growth rate should not equate to a 21 forward P/E ratio. Intel Corporation (NASDAQ:INTC) trades for a low multiple of 11.9 and pays a nice 4% yield. However, if the company can’t solve its PC problem and get mobile moving, analysts might be crazy to expect 11% EPS growth. I’m holding on for now, but I’m beginning to get worried.

The article These 5 Questions Need Answers originally appeared on Fool.com and is written by Chad Henage.

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