Dec 4 - Fitch Ratings has assigned an initial Issuer Default Rating (IDR) of
'A+' and short-term IDR of 'F1' to Intel Corporation. Fitch also
assigned an 'A+' rating to the company's proposed offering of senior unsecured
notes. Fitch expects that proceeds from the notes will be used for general
corporate purposes including investments in capital expenditures, share
repurchases and potential acquisitions.
As the leading provider of microprocessors for PCs and servers worldwide, Intel
is one of the strongest credits in the technology space. The company's
manufacturing technology advantage has resulted in a widening degree of
differentiation from its competitors over the years. While new competition has
emerged recently in ARM-based processors for tablets and smartphones, Fitch
believes that the company's dominance of x86 based processors which are the most
prevalent computing platform in the world will result in a relatively stable
market opportunity for the foreseeable future.
The ratings and Outlook reflect the following considerations:
--Fitch expects the company to maintain a relatively conservative capital
structure and balanced approach to shareholder friendly actions. Fitch expects
leverage (total debt / EBITDA) to remain comfortably below 1x and for normalized
free cash flow to adjusted debt to range near 35% or above 50% before dividends.
--Fitch expects share repurchases and the company's dividend to be financed by
free cash flow. Fitch also expects Intel to continue to be acquisitive going
forward, which could potentially be a source of additional modest debt
--Fitch believes that Intel's new energy efficient processors targeted for
tablets and smartphones will begin to establish the company's presence in that
market. Intel's technology leadership in the semiconductor space is a
significant competitive advantage and its focus on this emerging market
opportunity should begin to produce returns over the next few years.
Importantly, Fitch does not believe that Intel's ultimate success in this market
is contingent on the success of Windows 8 or future Windows platforms. However,
greater consumer adoption of Windows 8 devices should materially aid Intel over
the next few years.
The short-term rating reflects the significant liquidity resources Intel has on
balance sheet. The company had $3.5 billion of cash plus $7 billion in
short-term investments including marketable debt securities as of Sept. 30,
2012, to support its $3 billion CP program. Intel has no revolving credit
Intel's ratings and Outlook are supported by the following factors:
--Continued long-term secular growth in digitalization and computer adoption
worldwide as well as greater penetration of microprocessors in areas outside of
--Broad geographic and business diversification: Although the majority of the
company's revenue is derived from PC and server demand, these markets are driven
by different secular growth trends which Fitch expects to contribute to
--Intel is the dominant microprocessor vendor and maintains a clear and
significant technology advantage, particularly in manufacturing, over its
Credit concerns include:
--Intel is exposed to the highly cyclical demand for semiconductors which is
typically exacerbated at the beginning of cyclical downturns due to channel
--Intel has significant customer concentration with its two largest customers
representing 19% and 15% of revenue in 2011.
--The business model has high fixed costs, principally in R&D, in addition to
being highly capital intensive. Intel's high profit margins largely compensate
for this risk although capital spending has in recent times ranged near 50% of
Liquidity as of Sept. 30, 2012 was solid with cash of $3.5 billion and a $3
billion commercial paper program which had no outstanding balance. Intel also
had $2.5 billion of short-term investments, $4.5 billion in trading assets and
$3.9 billion of marketable securities. Free cash flow of $3.8 billion over the
latest 12 month period further supports liquidity.
Total debt as of Sept. 30, 2012 was $7.1 billion consisting principally of $1.5
billion in 1.95% senior unsecured notes due October 2016, $2 billion in 3.3%
senior unsecured notes due October 2021, $1.5 billion in 4.8% senior unsecured
notes due October 2041, $0.9 billion ($1.6 billion principal value) in 2.95%
junior subordinated convertible debentures due July 2035, and $1.1 billion ($2
billion principal value) in 3.25% junior subordinated convertible debentures due
Intel also owes $900 million to NVIDIA as part of a long-term patent cross
licensing agreement in 2011, payable over six years. This amount is categorized
under accrued liabilities.
Fitch has assigned the following ratings to Intel:
--Short-term IDR 'F1';
--$3 billion commercial paper program 'F1';
--Senior unsecured notes 'A+'; and
--Junior subordinated convertible debentures 'A'.
The Rating Outlook is Stable.
WHAT COULD TRIGGER A RATING ACTION?
Positive: Future developments that may, individually or collectively, lead to
positive rating action include:
If Intel is successful in solidifying its market position in the market for
smartphone and tablet processors while maintaining its high level of
profitability, it is possible the ratings could be positively impacted.
Negative: Future developments that may, individually or collectively, lead to
negative rating action include:
--If Intel is not successful in expanding its market share in the tablet and
smartphone market while consumer PC demand is further cannibalized by tablet
adoption, it is possible the ratings could be negatively impacted.
--At the current rating level, Fitch would expect total debt / EBITDA to remain
comfortably below 1x and for free cash flow before dividends to represent 50% of
adjusted debt under normal conditions. If that free cash flow figure were to
fall closer to 20%, a rating in the 'BBB' category could be more appropriate.
Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology', dated Aug. 8, 2012;
--'Evaluating Corporate Governance', dated Dec. 13, 2011;
--'Rating Technology Companies', dated Aug. 9, 2012.
Applicable Criteria and Related Research:
Corporate Rating Methodology
Evaluating Corporate Governance
Rating Technology Companies