Post-Jobs Intel's a Better Bet Than Apple
Apple's Wednesday earnings report for its fourth quarter was Apple's first earnings miss in 26 quarters. The good news was that its profit of $6.62 billion was still 54% higher than the year before. Nevertheless, Apple's EPS of $7.05 was 26 cents a share below analysts' expectations, according to Bloomberg.
The cause of the earnings disappointment was a shortfall in iPhone sales. Apple sold 17.07 million iPhones -- it accounts for 39% of Apple's revenues -- about 17% less than the 20 million projected by analysts surveyed by Bloomberg. The explanation for this is that consumers were waiting for the iPhone 4S that was released after the September 24th close of the quarter.
But Apple softened the blow by announcing that its first quarter (ends in December) EPS will be an expectations-beating $9.30 on sales of about $37 billion.
Meanwhile, analysts treated Intel management with respect when it reported earnings that beat expectations by 7%. Specifically, Intel reported EPS of 65 cents that was four cents ahead of expectations; its net income of $3.5 billion was 17% above the year before; and its revenue of $14.3 billion was up 29% from the year before.
Not only did Intel beat, but its forecast for the current quarter of $14.7 billion is nearly $500 million higher than analysts expected.
But it's not all good news for the company. Intel controls 80% of the central processing unit chips that go into personal computers, but it has yet to gain traction among handheld devices. And a decline in so-called netbook PCs in favor of tablets is hurting Intel -- sales of its Atom chips that go into netbooks fell 32% in the quarter.
Nevertheless, Intel believes that when Microsoft (NASDAQ: MSFT) releases its Windows 8, PC sales will rise and boost Intel's business.
And it looks like those predicting the imminent demise of PCs may be off base. Gartner (NASDAQ: IT) predicted last month that 364 million PCs would be sold in 2011 and that number would grow 10.9% in 2012. Monday, Gartner predicted that tablet sales -- they're now a mere 15% of PC sales -- would rise from 20 million in 2010 to 900 million by 2016 -- a whopping 88.5% compound annual growth rate.
So does this mean you should sell your Apple shares and pile into Intel? It's hard to tell.
- Apple: Strong growth and margins; fairly priced stock. Apple's revenues have climbed 66% to $108 billion in the past 12 months while net income has jumped 85% to $26 billion – yielding a healthy net profit margin of about 24%. Its PEG of 1.06 (where a PEG of 1.0 is considered fairly priced) is reasonable on a P/E of 14.4 and expected earnings growth of 13.6% to $38.05 in fiscal 2013.
- Intel: Big growth and healthy margins; expensive stock. Revenue for Intel has increased 24% to $51.6 billion while net income surged 162% to $12.8 billion – yielding a nearly 25% net profit margin. However, its PEG of 2.38 is quite expensive on a P/E of 10 and expected earnings growth of 4.2% to $2.51 in 2012.
I'd favor Intel over Apple.