Intel Financial Analysis

By Brian Hemmi

Intel is a large multinational company based out of the United States of America. Their
primary market is the market of microprocessors. This is a large market with little competition.
Microprocessors are chips that incorporate the central processing units of computers and other
electronics into a single chip. This has greatly reduced the size and complexity of computers and
made the manufacturing of central processing units much easier and more efficient both in terms
of cost and production time. Intel is one of the leading manufacturers in this industry and their
closest competitor is Advanced Micro Devices (AMD). Like their competitors, Intel does not
only make processor chips, they make motherboards for servers, desktop computers, tablets, and
other mobile devices. Their microprocessors are what they are most well-known for.
Intel operates in multiple countries across the Americas, Europe, and Asia which spans
across the entire globe. Their products can also be found in products in almost any country since
they are one of the primary manufacturers of chips for computers. They also have a vast supply
chain that reaches around the globe for different aspects of their production. Intel only partners
with suppliers that practice sustainability, environmentalism, and human rights which fits along
with their corporate values (Intel.com).
Since Intel is such a large company and manufacturer they are exposed to a multitude of
currencies and therefore have a large risk when it comes to the exchange rates. Most of Intels
operations in other countries is limited to sales and marketing meaning they do not have a lot of
investment in facilities and equipment in these regions since they do not manufacture there. This
means that the risk they are exposed to in these countries is limited to the income they produce
on a continuing basis and not tied into a lot of long term assets. In the other countries Intel does
business where they manufacturer products such as their processor chips, they have a high initial
exposure to exchange rate because of the purchasing of the equipment they need and the
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buildings for production as well as the continuing exposure to the purchasing of components and
supplies to maintain this manufacturing and ship out the finished products to the other countries
where they will be sold. Intel keeps a low ratio of raw materials to work in process and finished
goods, which while decreasing the need for larger storage facilities also means they are making

Source: Intel.com
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more transactions to purchase the materials they need which further increases their exposure to
fluctuations in exchange rates. In terms of risk against interest rates, Intel takes long term loans
since their operations in a country a meant to be long term investments such as offices for the
sales in a country, warehousing to distribute their products, or manufacturing plants which
require large amounts of capital to be dedicated to them. As shown in the image above, most if
not all of Intels sources of income are directly impacted by a risk of some sort. The bulk of
their income comes from their day to day activities which when are in other countries carries the
exchange rate risk when they convert those earnings to the US dollar to report them. Their
available for sale investments also carry the exchange rate risk depending on where the
investments are located and the currency they are in and they also carry the risk associated with
the markets. Intels next biggest source of money is through long term financing which carries
with it interest rate risk. The rest of their income has low risk when it comes to exchange rate
risk and interest rate risk (Intel.com).
Over the past few years Intel has started to see a gradual decrease in revenue while seeing
a gradual rise in their expenses. It is hard to attribute what could be the cause of this since it
could be a combination of things such as fewer suppliers in the marketplace, more competitors
for microprocessors, an increase in the cost of raw materials for either the suppliers or Intel, or a
change in demand for their brand. Intel also keeps a large portion of their profit as cash and cash
equivalents which allows them to mitigate risks when it comes to interest risk since they can
finance their projects themselves instead of taking loans for them. Over the past few years their
long term and short term debt has stayed relatively the same even with expansion of their
accounts for development of property either built or under construction (Intel.com).

Intel holds reserves of many currencies. The currencies they have the most reserves of
are Euros and Japanese Yen. Since they have the greatest reserves of these, the exchange
fluctuations of these currencies will have the greatest impact on the company. Intel has the
greatest reserves of the Euro so the fluctuations on this currency have the greatest impact on their
assets. As the chart below shows, the Euro had a year of large decreases against the dollar
between May 2011 and August 2012which means this would have been the best year for them to
invest in the European market since the dollar would have been worth more Euros than before
April of 2011. During the period between August 2012 to April 2014 Intel would have seen

decreasing profits from their business operations in Europe due to the Euro
Source: freestockcharts.com

appreciating against the dollar. This means that they would get less US
dollars for every Euro they converted decreasing their overall returns and making any new
acquisitions in Europe funded by US dollars more expensive. After this period they would have
seen increased returns on their operations in Europe due to the decrease of the value of the Euro.

The other currency that has the greatest impact on their foreign operations is the Japanese Yen.
As shown by the chart below, the US dollar value has become more valuable against the
Japanese Yen, meaning that new ventures and acquisitions made in Japan with US dollars would
have become cheaper for Intel and they would see increased profits from their business

Source: freestockcharts.com

operations. All of their other currency holdings are less than these two by
quite a bit and therefore have less of an impact on the profitability of the

company. Since both of these currencies are moving favorably for Intel they should expect to
see increased revenue from the same level of business activity and should look to continue
expansion in these areas (Intel.com).
In order to mitigate the risks associated with conducting business in multiple countries,
Intel does undertake in hedging. This allows them to offset the possibility of taking a loss due to
the changing exchange rates and interest rates that are constantly fluctuating in every country.

The main method Intel uses to hedge their exposure is using currency forwards. The main
currency Intel does business with is the US dollar but they also have the risk from the currencies
mentioned earlier plus the Israeli Shekel. These currency forwards are meant to reduce the
exposure risk as much as possible since it is impossible to eliminate the risk of exchange rates
entirely due to their nature. To counter interest rate risks they use interest rate swaps. They are
exposed to interest rate risk through a few different ways. Intel loans money to certain
companies, take loans themselves, and have other investments such as licensing agreements with
companies such as NVidia. When it comes to marketable equity securities, Intel does not
automatically engage in hedging. They instead look at these types of investments on a case by
case basis and determine if they need to undertake hedging. Since some investments might be
shorter term it might not necessarily be worthwhile or cost effective to hedge these types of
investments since they will be concluded before any offset can be achieved. Over the past few
years, Intel has increased their hedging activities. The activity that they have increased the most
is their currency interest swaps which they have more than doubled the value of since 2011.
They hold the most currency forwards for the Euro seeing as they do the most business in this
currency besides the dollar.
Dec 28,
2013

(In Millions)

Currency forwards
Currency interest rate swaps
Embedded debt derivatives
Interest rate swaps
Total return swaps
Other
Total

13,404
4,377
3,600
1,377
914
67
23,739

Dec 29,
2012

13,117
2,711
3,600
1,101
807
127
21,463

Dec 31,
2011

11,203
1,650
3,600
1,837
761
182
19,233

Source: Intel.com

Dec 28,
2013

(In Millions)

British pound sterling

Chinese yuan
Euro
Israeli shekel
Japanese yen
Malaysian ringgit
Swiss franc
Other
Total

549
1,116
6,874
2,244
4,116
506
1,189
1,187
17,781

Dec 29,
2012

308
647
5,994
2,256
4,389
442
657
1,135
15,828

Dec 31,
2011

459
688
3,904
2,168
3,477
805
209
1,143
12,853

Source: Intel.com

The tables above shows the breakdown of the hedging methods Intel uses and how much of each
type they hold. Over the last few years they have greatly increased their efforts in hedging, by
almost 40% for currency forwards and interest rate swaps, which can be a large help during
times of high volatility in the currency markets that could have a negative impact on the bottom
line for Intel (Intel.com).
When it comes to the world of Microprocessors the field can be very competitive since
on the surface there is very little difference between competitors products. Since all substitute
products fulfill the same purpose as the others each company has to work hard to build a brand
image for themselves to set their product apart from the others. While there are not a lot of wellknown manufacturers for computer processors, Intel has managed to set themselves apart from
the rest as one of the highest quality and most dependable computer parts manufacturers. Intels
biggest computer known around the world is AMD. AMD makes a cheaper processing chip than
Intel and is geared more towards the budget side of the market place. While this doesnt directly
interfere with Intel since they have built their brand image on being used in the higher quality
and higher performance systems, it has interfered with their growth in the business computing

market segment since these computer systems do not necessarily need high performance parts
since they run either off of a server or only run basic programs that almost any computer can run.
Since the production of these parts needs such sterile conditions and use the same materials, it is
very possible that the different manufacturers use the same suppliers for components and raw
materials which means they have the same types of currency and interest exposure when it
comes to obtaining their materials. It is hard to tell how Intels competitors differ when it comes
to hedging since Intel considers hedging an investment on a case by case basis.
Overall, Intel is a strong company financially that should see increased profits I the
coming years. Even though their operating revenue has not changed much over the last few
years they have managed to increase their incoming cash while keeping their outgoing cash
balanced with the incoming. They have also drastically increased their acquisitions in the last
year which could have significant returns on their growth and profitability in the coming years.

Works Cited
Intel. (2014). 2013 Annual Report. Retrieved from
http://www.intc.com/sec.cfm?DocType=Annual&Year=&FormatFilter=
Intel Corporation - Investor Relations. (n.d.). Retrieved November 29, 2014, from
http://www.intc.com/
The Web's Best Streaming Realtime Stock Charts - Free! (n.d.). Retrieved November 29, 2014,
from http://www.freestockcharts.com/

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Appendix A
INTEL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Three Years Ended December 28, 2013
(In Millions, Except Per Share Amounts)

2013

Net revenue
Cost of sales
Gross margin
Research and development
Marketing, general and administrative
Restructuring and asset impairment charges
Amortization of acquisition-related intangibles
Operating expenses
Operating income
Gains (losses) on equity investments, net
Interest and other, net
Income before taxes
Provision for taxes
Net income

Basic earnings per common share

Diluted earnings per common share

Weighted average common shares outstanding:

Basic
Diluted

2012

52,708
21,187
31,521
10,611
8,088
240
291
19,230
12,291
471
(151 )
12,611
2,991
9,620

2011

53,341
20,190
33,151
10,148
8,057

308
18,513
14,638
141
94
14,873
3,868
11,005

53,999
20,242
33,757
8,350
7,670

260
16,280
17,477
112
192
17,781
4,839
12,942

1.94

2.20

2.46

1.89

2.13

2.39

4,970

4,996

5,256

5,097

5,160

5,411

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Appendix B
INTEL CORPORATION
CONSOLIDATED BALANCE SHEETS
December 28, 2013, and December 29, 2012
(In Millions, Except Par Value)

Assets
Current assets:
Cash and cash equivalents
Short-term investments
Trading assets
Accounts receivable, net of allowance for doubtful accounts of $38 ($38 in 2012)
Inventories
Deferred tax assets
Other current assets
Total current assets
Property, plant and equipment, net
Marketable equity securities
Other long-term investments
Goodwill
Identified intangible assets, net
Other long-term assets
Total assets
Liabilities and stockholders equity
Current liabilities:
Short-term debt
Accounts payable
Accrued compensation and benefits
Accrued advertising
Deferred income
Other accrued liabilities
Total current liabilities
Long-term debt
Long-term deferred tax liabilities
Other long-term liabilities
Commitments and contingencies (Notes 18 and 26)
Stockholders equity:
Preferred stock, $0.001 par value, 50 shares authorized; none issued
Common stock, $0.001 par value, 10,000 shares authorized; 4,967 issued and
outstanding (4,944 issued and outstanding in 2012) and capital in excess of par value
Accumulated other comprehensive income (loss)
Retained earnings
Total stockholders equity
Total liabilities and stockholders equity

2013

2012

5,674
5,972
8,441
3,582
4,172
2,594
1,649
32,084
31,428
6,221
1,473
10,513
5,150
5,489
92,358

281
2,969
3,123
1,021
2,096
4,078
13,568
13,165
4,397
2,972

8,478
3,999
5,685
3,833
4,734
2,117
2,512
31,358
27,983
4,424
493
9,710
6,235
4,148
84,351

312
3,023
2,972
1,015
1,932
3,644
12,898
13,136
3,412
3,702

21,536
1,243
35,477
58,256
92,358

19,464
(399 )
32,138
51,203
84,351

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