Invest smart at Intel

Sales and operating profits rose in four of Intel's five divisions last year, as the group outgrew the broader market with record shipments of chips for personal computers, servers, smartphones, tablets and connected devices. Combined with rigorous cost control, Intel widened its gross margin by 3.9 percentage points to 63.7 per cent, and grew operating profit by a quarter to $15.3bn (£10.4bn).

Revenues rose a healthy 4 per cent in its flagship PC division in 2014, but the real stars were its data centre and Internet of Things businesses. Sales there climbed 18 and 19 per cent, respectively, due to strong demand for cloud computing, data analysis and continued penetration into manufacturing and automotive markets. Together, the two businesses accounted for 30 per cent of group sales and 35 per cent of operating profit (excluding the loss-making mobile division).

Looking ahead, Intel expects double-digit sales growth in both of those divisions to continue. Broker Needham & Co predicts that will drive operating profit up a tenth in 2016, sending EPS up 14 per cent. Investors might expect a hefty price tag for that growth, but Intel's shares trade at an inexpensive 14 times forecast earnings for 2015, falling to 12 times in 2016 - a sharp discount to its peers in the US semiconductor industry. Intel shares also come with a decent forecast yield and the company continues to return capital to shareholders through buybacks too - it spent $10.8bn on its own shares last year.

Intel's hefty investments in areas such as mobile devices and the burgeoning Chinese market are also likely to galvanise further growth. For instance, it acquired cybersecurity specialist McAfee in 2011, and has retooled its low-cost, power-efficient Atom microchips to target smartphones and tablets. Intel also shelled out $1.5bn for a 20 per cent stake in Chinese state-run Tsinghua Unigroup, which controls two domestic mobile chipmakers, last September. And it recently agreed to acquire German chipmaker Lantiq – previously owned by Infineon Technologies - which specialises in home networks.

Investors' eyes may be drawn to falling sales in Intel's mobile and communications segment, which widened the division's operating loss by just over a third to $4.21bn in 2014. But that reflects the group's decision to subsidise sales of its microchips to tablet makers; it's effectively sacrificing short-term profits in order to capture market share. The manoeuvre appears to have paid off: Intel shipped 46m tablet processors last year - well above its target of 40m. It now controls almost a fifth of the market, second only to iPad-maker Apple.

The real cloud on Intel's horizon is investor anxiety over the long-term outlook for the mature PC market, which accounts for 62 per cent of sales and 65 per cent of profits. Slowing PC sales resulted in Intel lowering its first-quarter revenue guidance by 7 per cent to $12.8bn - in line with the first quarter of 2014 - due to tepid demand from small and medium-sized businesses, currency movements and economic weakness in Europe. But flat PC sales shouldn't overshadow the growth opportunities and strong gross margins.