Intel Corporation (NASDAQ:INTC)‘s Internet of Things (IoT) business continued to shine in the third quarter of 2015 as the company posted revenue growth of 10% in the category. For the third quarter, total firm revenue totaled $14.5 billion, up 10% from the prior quarter and beating analysts’ average estimate by $250 million. Sales from Intel’s new Skylake processors were a highlight for the quarter, helping the company to overcome slow personal computer sales in the Client Computing industry. Microsoft Corporation (NASDAQ:MSFT)’s Windows 10 pairing with the Intel Skylake processor release also aided growth in personal computing as third quarter revenue jumped 13% sequentially in Intel’s Client Computing business.
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Internet of Things
While a small part of Intel’s overall revenue contribution, Intel’s Internet of Things business has been growing significantly and capturing a substantial market share. Intel’s 2014 investment in the Internet of Things was a critical leap for the firm and has paid off substantially as the firm has seen revenue in the business unit grow steadily. At its December 2014 IoT event, the company’s announcements included an added overall commitment to software, hardware, and platform services. Additionally, the firm expanded its services extensively to allow for increased Internet of Things developer opportunities. The firm’s 2014 advance commitment to the Internet of Things has helped the firm to brand itself as the leading provider for a wide range of products and services required to achieve networking success in the Internet of Things.
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The 2014 investment helped Intel take a leading position in the Internet of Things business while many of its peers have lagged in marketing services for the market segment. In addition to the firm’s reporting transparency, Intel Corporation (NASDAQ:INTC) has also taken a leading industry position through its activity in Internet of Things industry groups. It formed the Open Internet Consortium and has also been involved in the Industrial Internet Consortium. While its Internet of Things competitors, International Business Machines Corp. (NYSE:IBM), Cisco Systems, Inc. (NASDAQ:CSCO), Advanced Micro Devices, Inc. (NASDAQ:AMD) and QUALCOMM, Inc. (NASDAQ:QCOM), have also been active in industry groups, the competitors have lagged in business investment commitment and reporting transparency.
To further its success in the Internet of Things Intel also recently announced the acquisition of Altera (ALTR) in June 2015. Altera will drive value growth in both Intel’s Data Center and Internet of Things businesses. Altera will add considerably to Intel’s Internet of Things revenue growth also further increasing its competitiveness in the Internet of Things.
According to Intel’s Chief Executive Officer, Brian Krzanich, “Integrating Altera’s world-class technology with Intel architecture in the high-growth data center and Internet of Things market segments will create new product categories and capabilities.”
Specifically, Altera brings a wide variety of field-programmable gate arrays (FPGAs), circuits used in creating Internet of Things connectivity. With the enhanced FPGA connectivity capabilities, Intel will be able to expand its serviceable Internet of Things market by approximately $11 billion. The Altera acquisition has been approved by the shareholders of both Intel and Altera and is expected to close within the next six to nine months.
Third Quarter Results
Superior brand positioning and innovation have been key to Intel Corporation (NASDAQ:INTC)’s success and have been helping value growth throughout all of the firm’s business segments. Its Intel Skylake processors helped the firm generate revenue of $8.5 billion in Client Computing in the third quarter despite considerable headwinds from lower personal computer sales. Meanwhile, Data Center grew 12% and 8% in the comparable and sequential quarters, respectively, and continues to capture market share in cloud computing. On the top and bottom lines, Intel reported strong growth overall in comparison to the second quarter. In the third quarter revenue was up 10%, while earnings increased 15% and earnings per share were up 16%.
Buying Opportunity
Growth in IoT and the firm’s strong market position in Client Computing and Data Center have helped to make Intel a leading investment among its industry peers. In peer ratio comparisons the firm is one of the most efficient technology companies in the technology industry in terms of gross margin. Intel has a trailing twelve month gross margin of 63%, behind only competitor Microsoft with a gross margin of 65%. Its TTM ROE is a leader among its semiconductor peers at 19.97%. It has also reported strong FCF and FCF to revenue. Its TTM FCF was $10.85 billion and its FCF to revenue over the past five years has averaged 19.15%.
The firm has a TTM dividend yield of 2.93% matching competitor Cisco and falling just behind IBM at 3.18% and Qualcomm at 3.11%. Its TTM P/E is trading slightly below its peers indicating it has upside potential in the current market, specifically following the strong third quarter earnings report and continued momentum across all of its business segments. Its TTM P/E is 13.67 versus 15.89 for Qualcomm and 31.84 for Microsoft.
Given the firm’s superior brand positioning, efficient operations and strong growth initiatives it appears poised to continue posting incremental gains for long-term value investors. Analysts have a similar outlook for the stock with a high target value of $40. Recent upgrades from JMP Securities and Northland Capital also further support the firm’s long-term value opportunity.
Disclosure: The author has no position in Intel or other securities mentioned in the article.
