Just one month ago Intel raised Q3 sales guidance from 14.9B to 15.6B and gross margin guidance from 62% to 63%. The company cited improving PC demand as the catalyst. Last night the company reported even stronger sales at $15.78B however its outlook for Q4 and adjustment of revenue figures quickly dampened the mood and saw the shares selling off in the after hours. As one of our favorite longer term positions we thought it worthwhile to relay our thoughts on the news and stock action.

First off it’s important to know that we’ve been in and out of INTC over the years on several occasions. This turnover was primarily due to our uncertainty surrounding the chip sector as a whole and the possibility of being wrong regarding a general sector rotation. As the industry has improved, our confidence in the sector has correlated. This time, we entered INTC in mid-August around $34 per share with a stop of $28.00. As you can guess, just by reviewing the stop, our desire is to remain in this stock for quite some time regardless of the minor hiccups along the way.

What you have to understand is our longer term belief, not in the quarterly reports, but the longer term enterprise value of the company due to its incredible economic moat, fortress balance sheet, cash flow capabilities and above average return on equity. In addition, it is our opinion that in such a low interest rate environment, the 3% dividend is something investors will clamor for, especially during periods of intermittent weakness.

Despite the  dampened short term mood of the stock this morning,  the execution of management to transition from the general PC market  into the enterprise market remains on track. It is our belief that this decline offers longer term investors an opportunity to add to their position, which is exactly what we’ll be doing with new capital that has come into our firm this quarter.

I don’t believe this weakness will last long in this stock and over the next several years will be viewed, in hindsight, as an excellent