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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Intel strategy appears ready to pay off

Intel workers put on special clothing to manufacture microprocessors at the company’s headquarters in Santa Clara, Calif. (Associated Press)
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Intel’s (Nasdaq: INTC) dominant position in the PC chip business might have you thinking that it’s in trouble, with PC sales weakening as consumers turn more to smartphones and tablets. But Intel is changing with the times, and with its data centers, has become a significant player in the fast-growing cloud computing arena.

In its last quarter, overall revenue was flat year over year, at $12.8 billion, but data center revenue grew by double digits. More specifically, tablet platform unit volume surged 45 percent year over year in its last quarter, while desktop platform unit volume sank by 16 percent. Meanwhile, data center unit volume grew by 15 percent – with prices rising by 5 percent, too.

Intel’s most recent big news, though, is that it’s buying chipmaker Altera for about $16.7 billion – its largest purchase ever. Altera specializes in field-programmable gate arrays, or FPGAs, which can help Intel’s server and data center businesses by speeding up servers and can give it inroads into networking and wireless applications. It plans to integrate FPGAs onto its processor chips, for example.

Intel’s future is not certain, but with annual free cash flow topping $11 billion, a price-to-earnings (P/E) ratio in the low teens and a dividend that recently yielded 3 percent, its stock is looking rather appealing. (The Motley Fool has recommended Intel.)

Ask the Fool

Q: What are “quick” and “current” ratios? – B.W., Saratoga Springs, New York

A: They’re measures of a company’s debt level, calculated from its balance sheet. For the current ratio, divide current assets by current liabilities, revealing whether the company has sufficient resources (such as cash and expected payments) to pay its bills over the coming year. The quick ratio, sometimes called the acid-test ratio, is a bit more meaningful, subtracting inventories from current assets before dividing by current liabilities.

A result above 1 is good for both ratios, and above 1.5 is better, though a very high number can reflect assets sitting around unproductively.

These numbers vary by industry, so compare a company only with its peers – or with itself over time – to see trends. Declining ratios, for example, can be a red flag.

Q: What do chief financial officers do? – T.Y., Greenwood, South Carolina

A: A company’s chief financial officer (CFO), such as The Home Depot’s Carol Tome, Southwest Airlines’ Tammy Romo and MasterCard’s Martina Hund-Mejean, is responsible for all things financial, such as determining what the company’s financial needs are and will be, deciding how best to finance those needs, and informing all stakeholders (investors, creditors, analysts, employees, management) of the company’s financial condition.

The CFO also maintains the best mix of internal cash, debt financing and stock financing for the company (this is known as its “capital structure”). The CFO plans and oversees the forecasting and budgeting process, monitors all cash flow, maintains relationships with funding sources such as commercial and investment banks, and oversees the process of developing and communicating the quarterly and annual financial statements.

Finally, the CFO has ultimate accountability for maintaining the books and records of the company.

My dumbest investment

I bought shares of a beverage company whose stock was trading on the pink sheets. That’s apparently a sure way to lose money. I learned that there is a reason companies are trading on the pink sheets … none of them good, no matter how good the companies or their promoters can make them seem. This particular company was supposedly working to get onto the Big Board.

The moral to the story: Wait until a company gets onto the Big Board, then see if it’s worth the investment. – P., online

The Fool responds: You learned a fine lesson. When a stock doesn’t trade on the major exchanges, such as the New York Stock Exchange (NYSE) or the Nasdaq Stock Market, it probably doesn’t meet their listing requirements. The Big Board is the NYSE, which notes, “A listing on the New York Stock Exchange is internationally recognized as signifying that a publicly owned corporation has achieved maturity and front-rank status in its industry – in terms of assets (and) earnings …”

Companies that don’t make it onto big exchanges tend to be small, unproven and volatile, sinking many investors. They’re traded “over the counter” (OTC) or on the “pink sheets.” Pink sheet companies don’t even have to file financial reports with the Securities and Exchange Commission (SEC).