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Fitch Affirms Intel's Ratings at 'A+'; Outlook Stable
[November 26, 2014]

Fitch Affirms Intel's Ratings at 'A+'; Outlook Stable


CHICAGO --(Business Wire)--

Fitch Ratings has affirmed the ratings for Intel (News - Alert) Corporation (Intel), including the long-term Issuer Default Rating (IDR) at 'A+', and short-term IDR at 'F1'. The Rating Outlook is Stable. A full list of ratings follows at the end of this press release.

The rating actions affect approximately $13.2 billion of debt.

KEY RATING DRIVERS

The ratings and outlook reflect Fitch's expectations for solid long-term operating performance despite near-term headwinds related to the company's mobility strategy; strong free cash flow (FCF); and a conservative capital structure leading to solid credit protection measures through the rating horizon.

Fitch expects Intel to resume low-to-mid single digit revenue growth across the rating horizon driven by a more stable demand environment for PCs, and supported by the company's strong growth in its Data Center Group (DCG) and Internet of Things Group (IOTG) segments. In the near term, Fitch believes the recent PC refresh driven by the expiration of Windows XP licenses will no longer benefit PC Client Group (PCCG) growth, leading to a slight segment revenue decline in 2015. However, Fitch believes intermediate-term growth may be supported by the company's new 14nm process technology, which will allow for new 2-in-1 PC devices at prices that are more competitively priced against tablets. Over the long term, the continuation of Moore's Law should also continue to support growth across Intel.

Fitch believes Intel will continue to face near-term headwinds in its mobile unit (MCG), which has recently been folded into the company's PCCG segment. Intel's late arrival to the mobile processor market has led the company to pay cash subsidies to allow higher unit growth and greater unit share gains, leading to the realization of operating losses within MCG. The company expects to incur further losses in this part of the business through the near term, as it continues to subsidize the cost of implementing its processors in mobile platforms. Fitch expects these subsidies to decline over the intermediate term with a greater mix of unsubsidized processors, and as Intel's improving technology allows it to offer increasingly competitive processors at lower prices in the market.

The ratings are supported by:

--Intel is the dominant microprocessor vendor and maintains a clear and significant technology advantage, particularly in manufacturing, over its nearest competitors. Intel's x86 processor architecture is also the premiere platform for data center/servers, providing the company a significant advantage in the enterprise and cloud-computing space.

--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 longer-term stability.

--Continued long-term secular growth in digitalization and computer adoption worldwide as well as greater penetration of microprocessors in areas outside of traditional computing.

Rating 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 inventory contraction.

--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 EBITDA.



--Intel has significant customer concentration with its three largest customers representing 17%, 15%, and 12% of revenue in 2013.

Liquidity as of Sept. 30, 2014 was solid with cash of $3.1 billion and a $3 billion commercial paper program which had no outstanding balance. Intel also had $3.4 billion of short-term investments and $9 billion in trading assets. Of cash and short-term investments, approximately $4 billion were held in the U.S., and the remaining $11.6 billion was held with non-U.S. subsidiaries. FCF of $5.3 billion over the latest 12 month period further supports liquidity. The company does not have a revolving credit facility to support its commercial paper program but Fitch views Intel's strong liquidity as providing ample support for the program.


Total debt as of Sept. 30, 2014 was $13.3 billion and primarily consisted of:

--$1.5 billion in 1.95% senior unsecured notes due October 2016;

--$3 billion in 1.35% senior unsecured notes due December 2017;

--$2 billion in 3.3% senior unsecured notes due October 2021;

--$1.5 billion in 2.7% senior unsecured notes due December 2022;

--$750 million in 4.0% senior unsecured notes due December 2032;

--$1.6 billion principal value in 2.95% junior subordinated debentures due December 2035;

--$2 billion principal value in 3.25% junior subordinated debentures due August 2039;

--$1.5 billion in 4.8% senior unsecured notes due October 2041;

--$924 million in 4.25% senior unsecured notes due December 2042.

Intel also owes approximately $393 million to NVIDIA (News - Alert) as part of a long-term patent cross licensing agreement in 2011, payable over six years. This amount is categorized under accrued liabilities.

RATINGS SENSITIVITIES

Negative:

Future developments that may, individually or collectively, lead to negative rating action include:

--A more aggressive capital allocation policy, targeting higher share repurchases and/or greater acquisition activity to build Intel's MCG business, leading to leverage sustained above 1.25x.

--Normalized FCF to adjusted debt approaching 20%, as a result of continued tablet cannibalization of PC sales, and lack of penetration into the mobile market.

Positive:

Positive rating action is unlikely, given the cyclicality and volatility inherent in the semiconductor business, as well as the need for flexibility in managing technological changes and challenges. On an unlevered basis, it is possible for the company to achieve a rating in the 'AA' category; however, Fitch does not expect a shift towards a more conservative capital structure across the rating horizon. A positive rating action would likely require:

--Profitability improvement across the MCG business in line with competitors, signifying improved competitiveness and increased market share within the space.

--An explicit commitment to a leverage ratio of 1x or below.

Fitch has affirmed the following ratings for Intel:

--Issuer Default Rating (IDR) at 'A+';

--Short-term IDR at 'F1';

--$3 billion commercial paper program at 'F1';

--Senior unsecured notes at 'A+'; and

--Junior subordinated notes at 'A'.

The Rating Outlook is Stable.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology', dated May 28, 2014.

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=935675

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.


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