Friday July 27, 2012
by Chris Quigley, contributing editor The Prudent Speculator
There were quite a few important earnings releases out last week, but some of the biggest came from the tech sector -- software giant Microsoft (MSFT) and microchip titan Intel (INTC).
It was a solid finish to the fiscal year for Microsoft. Total revenue was $18.1 billion, up 4% year-over-year, with the Enterprise Products and Services segment, representing a third of annual revenue, navigating the rough economic environment best, growing by 8% on an annual basis.
We feel that Microsoft’s strong cash flow position is likely to grow over the next 12 months as a strong offering of new products is slated to hit shelves in the coming year, including the Windows 8 operating system and a mobile device-oriented update to its famous productivity suite, Office 2013.
Also, in an effort to compete with Apple’s iPad, Microsoft has vigorously pursued its own tablet-style device, complete with Windows 8 operating system.
In addition, the Xbox gaming system continues to evolve quickly by bringing a more interactive platform into the home and contributing to revenue growth in the Entertainment segment of nearly 20% versus the same period last year.
We look highly upon the company’s improving growth prospects across its business segments and like the generous dividend yield of 2.7% as well as the modest P/E ratio of 11.
Meanwhile, Intel reported a strong close to its second quarter. Revenue came in at $13.5 billion, up 4% from a year ago, which is of particular importance given the mixed macroeconomic environment.
Fantastic results came from the Technology and Manufacturing Business, as the new line of Intel processors based on a revolutionary 22-nanometer process have been exceptionally popular.
Intel CEO Paul Otellini commented, “The second quarter was highlighted by solid execution with continued strength in the data center and multiple product introductions in Ultrabooks and smartphones.”
Of course, Mr. Otellini was also quick to add, “As we enter the third quarter, our growth will be slower than we anticipated due to a more challenging macroeconomic environment.”
Despite the cautious near-term outlook, we share the company’s optimistic longer-term view. With a dividend yield of 3.5% and a P/E ratio of 10, along with solid cash flow generation and a stout 21% profit margin, we continue to find INTC an excellent addition to most portfolios.
Learn more about this financial newsletter at The Prudent Speculator.