Merger mania continues with Intel Corp.‘s (INTC) announcement that it’s buying Altera Corp. (ALTR) for $16.7 billion. Altera Corp. makes programmable chips, and Intel’s leadership believes the acquisition will boost its Data Centers segment, as well as its Internet of Things segment. Now, some analysts have expressed reservations about whether this deal may be overvalued, so INTC has pulled back slightly over the past few days. Is this dip a buying opportunity, or a red flag? Let’s find out by looking at Intel’s business model.
With 45 years in the business, Intel Corp. controls approximately 80% of the market for microprocessors that go into computers and servers. Personal computer giants Apple, Dell and Hewlett-Packard are some of Intel’s largest customers.
But while Intel Corp. built its empire on the PC boom, much of the future depends on its mobile and tablet technologies. And the company has made every effort to set the pace for the rest of the industry. Last year, Intel unveiled its M processor, which is more energy efficient and boasts 2X the performance per watt over the previous generation. Another positive is that the company’s primary business, personal computers, has stabilized.
Currently, Intel’s data center business and its Internet of Things group are its fastest growing segments. Last quarter they posted 19% and 11% annual sales growth respectively. Looking ahead, Intel expects the Altera acquisition to be accretive to its adjusted earnings per share within the first year.
All the while, Intel remains committed to its shareholders. The company recently added $20 billion to its stock buyback program. Yield seekers may also like to know that INTC has a generous 2.8% dividend.
INTC has a decent blend of growth and value. It earns a B-rating in Portfolio Grader (indicating solid growth potential), and a C-rating in Dividend Grader (indicating good dividend reliability). While I have higher rated semiconductor stocks in Portfolio Grader, INTC is a solid buy on dips.