Chip bellwether, Intel Inc. (INTC), recently reported a quarterly profit of $3.39 billion, up nearly 48.7 percent from a year earlier, giving further confidence that the economy is improving and shinning a ray of light on exchange traded funds (ETFs) that track the semiconductor industry.
This profit of $0.59 per share came despite weaknesses seen in the consumer personal computer world and was primarily driven by increased business server demand, which aided in pushing revenues up to $11.46 billion. This indicates that businesses are starting to loosen the grip on their wallets and make the purchases that were once put on the back burner in order to reduce operational costs.
Furthermore, Intel continues to witness healthy gross margins, as its margins increased to 67.5 percent from 64.7 percent and above analyst expectations of 66.7 percent.
As for the near term future of Intel, the company forecasts revenues for the current first quarter to be between $11.1 billion and $11.9 billion indicating that demand for its chips will remain elevated. According to Miriam Gottfried of Barron’s, this revenue is expected to be driven by sales of Intel’s new Sandy Bridge processor.
Other reasons Intel remains attractive include an expected $9 billion budget for capital expenditures during 2011, a ramp up in production of the company’s first microprocessor based on 22 nanometers and its relative cheapness. Intel’s shares are trading at roughly 10 times forward earnings as compared to nearly 21 times for competitor Advanced Micro Devices (AMD).
Although some analysts are saying that it is equally important to consider changes in consumer behavior as individuals are shunning away from PCs and turning to smartphones and tablets which don’t use Intel chips, like the Apple (AAPL) iPad, these changes have already started to emerge, evident in a decline in PC sales, and Intel appears to be adapting just fine.
Some ETFs that will likely be impacted by Intel’s performance include:
- Semiconductors HOLDRs (SMH), which boast Intel as its second largest holding at nearly 19.1 % of all assets.
- ProShares Ultra Semiconductors (USD), which is a leveraged play on the semiconductor industry and seeks to return 200 % of the performance of the Dow Jones US Semiconductors Index for a single day. Intel makes up the largest equity piece of USD and allocates nearly 13.9% of its assets to Intel.
- iShares PHLX SOX Semiconductor Sector (SOXX), which allocates nearly 6.9% of its assets to Intel.
Disclosure: No Positions