Tech Sector

First we considered the type of investment opportunities we were looking for:

low volitility
Continuous, long-term growth
Predictability

Semiconductors

Semiconductors fit our investment goals

Continuous growth
Very cyclical
Growth very much driven by R&D
Constant re-definition of "state of the art"

(We're at the best time of the cycle right now!)

So we took a look at the strongest ~~stocks~~ companies in this sector

INTC
QCOM
NVDA
ARMH

Of these, we looked more closely at ARMH and INTC

Excitingly different- fabless vs complete production/foundry

We found that although there's money to be made in both, we think Intel (INTC) better suits the goals of CIG.

Intel Corporation

on the NASDAQ

What INTC Does

semiconductor chip maker
develops advanced integrated circuits for computing and communications
They design and manufacture components (microprocessors, chipsets)

Intel is broken down into the following groups:^*

Reportable Operating Segments

PC Client Group
Data Center Group

Non-Reportable Operating Segments

Embedded and Communications Group
Digital Home Group
Ultra Mobility Group

^*there are a few others, too.

Group Revenue Breakdown

Market Fundamentals

Market Cap: $136.09B
52-Week Range: $19.16 (9/6/11) - $27.50 (2/3/12)
YTD Price Change: 4.00
Yield: $0.84/3.15%
Short Interest: 110.3M (2.17%)

P/E Ratio

Intel Corporation PE Ratio Chart by YCharts

P/EG Ratio

Intel Corporation PEG Ratio Chart by YCharts

S&P Recent Multiples

	FY 2008	FY 2009	FY 2010	TTM
EBITDA	12.31B	10.79B	20.7B	22.74B
Price/EBITDA	5.90	8.41	5.85	N/A
P/E Ratio	15.92	26.36	10.45	N/A

Trefis DCF Model

Calendar Year	2011	2012	2013	2014	2015
Revenue ($ Bil)	50.5	53.8	55.2	56.7	58.4
Adjusted EBITDA ($ Bil)	26.1	27.8	28.6	29.4	30.1
Indirect Expenses ($ Bil)	13.5	18.5	17.3	16.5	16.6
Discounted Cash Flows ($ Bil)		8.92	9.70	9.99	9.53

Sum of DCFs = $151 B. Also taking into account $4.37B of debt, the Trefis valuation for Intel is $155B.With 5.09B shares outstanding, that is a price estimate of $30.52 per share. Inspect this more closely here.

Investment Rationale

INTC has really strong moats.

INTC R&D Spending vs Competitors' Revenues

As you can see above, Intel's investments in R&D and capex exceed its main competitors' total revenues.

R&D Implications

Intel is able to create new growth drivers that justify its higher margins. e.g The tri-gate transistor
Sustained high R&D spending for INTC has created barriers to entry for firms, supporting its higher margins and keeping returns at high levels.

Strong Market Share

Major revenue generating areas:

High Margins
Notebook processors (high end) (82.3% market share)
Server processors (93% market share)
Desktop processors (79.3% market share)
Desktop and notebook chipsets

Future Growth

Future revenues depend on

adoption of PCs in general
success of Windows 8
Laptops vs Desktops (evolution of ultrabooks subnotebooks)
Server Market
Ivy Bridge microarchitecture

Risks

decrease in market share
lack of a mobile presence- QCOM Apple deal (offset by foundry initiative)
consumers may opt for low-end pcs - could drive Intel to self-cannibalize
Windows 8- ARMH heavy?

Thanks

View this presentation and the reports at cig.danielswiecki.com
email me at dswiecki@colgate.edu