INTC

I have suggested that Intel is on sale at bargain basement prices given it’s steady, if uninspiring, performance over the past decade. Revenues have grown a paltry 4% per year, while earnings and EPS have grown by by 7.3% and 9.9% respectively. Part of that discrepancy is explained by Intel putting its healthy cash flow toward the steady repurchase of shares, as well as a healthy return of dividends to shareholders.

Revenues in 2012 = $53.3 billion
Revenues in 2016= $62.8 billion
Revenues in 2021 = $79.0 billion

Earnings in 2012 = $11 billion
Earnings in 2017 = $16.8 billion
Earnings in 2021 = $22.3 billion

Share count in 2012 = 4.9 billion
Share count in 2017 = 4.7 billion
Share count in 2021 = 4.1 billion

EPS in 2011 = $2.13
EPS in 2017 = $3.47
EPS in 2021 = $5.47

So in 2011 you could have bought all of INTC for $99 billion @ $20/sh. Since then they have payed out $49 billion in dividends and bought back ~ $25 billion in stock for a total of $74 billion returned to investors. A private investor would have recouped 75% of their invested capital in ten years, pocketing $8-10 mil in fcf for the foreseeable future.

So, we have a company that is returning capital to shareholders while growing both top and bottom line in the face of its ever-imminent collapse. A collapse that has been predicted in each and every of the past ten years, never mind the fact that they have grown revenues and earnings by 48% and 100% respectively over that time period. You can buy these increased revenues and earnings at the same price available to you five years ago, a mere 9 times current earnings.

The contrary thesis is that Intel is a slow moving brontosaurus in a landscape increasingly dominated by more agile raptors. To make maters worse, they are choosing to redirect all of that FCF back into a risky venture involving the establishment of Intel as a domestic chip foundry. They have committed at least $20 billion to this effort.

Many pooh pooh this pivot as a fool hardy venture into a low margin business, however I wonder if the timing of this is not perfect?

We are seeing the wheels coming off the great globalization bullet train of the past half century, with rising concerns about the dependency of the American and European economy on east Asian manufacturers. The chip manufacturing business in particular has been identified as not just as a bottleneck in the global supply chain crisis, but also a geopolitical risk in an increasingly fractious geopolitical environment.

I believe Intel is setting itself up as the go to supplier of chips for the US economy well into the 21st century, and I believe that current concerns about the economic and political risks of reliance on one region, or one country, for our supply of vital capital inputs is too great a risk for the American economy and American political leadership in the world.

So on both a value basis, and on a strategic basis, I believe that Intel will be a great investment going forward, especially at these depressed prices.

PP

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Maybe all those share repurchases and dividends would have been better spent on R&D and capital investments. Before the current CEO, Intel was run by finance guys rather than engineering/production people.

Most of the past decade Intel was the top dog in server and laptop processors; AMD trailed a distant second. NVDA had specialized graphics processors, but overall market was limited.

Also Intel was strongly competitive with if not superior to TSMC and Samsung in manufacturing.

Everything has turned topsy-turvy in the last few years. Intel’s proprietary architecture is nearing the end of the road, ARM designs are winning more converts, including Apple. AMD too has made wide inroads into Intel’s server and laptop markets. Intel’s processors are too power hungry and unsuitable for mobile devices. Apple ditched Intel after years of frustration with Intel’s efforts, and rumors are that Microsoft is looking at alternatives for Surface laptops.

Another comment I have heard is Intel is no longer the top choice for top engineering graduates who are mostly from Asia these days. While the CEOs of direct competitors Nvidia, AMD, TSMC, Samsung are all of Asian background (as are those of Alphabet, MSFT, Twitter, IBM), Intel still is sticking to “pale, male and stale” when selecting its top managers. And young engineers are noticing.

Intel still is a formidable company and will survive and be fairly profitable given the huge and growing demand. But it days of margins in the mid-60% is probably over. Plus huge capital investments will be required, even as competitors are getting stronger. But there is also the risk that the huge investments will not provide the returns hoped for. And with the markets big fall this year, there are so many choices among big techs as well as non-tech companies with strong moats. Some examples: GOOGL, FB, UPS, BLK, DG.

I have a long held investment in Intel from 2000 Oct which I am still holding but not adding to, as I find other alternatives more attractive at lower risk.

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You may find this ASML article on their latest technology interesting–

https://www.reuters.com/technology/computer-chip-giant-asml-…

It includes this statement–

“He said TSMC eclipsed its rivals by integrating ASML’s EUV machines first in the late 2010s - a mistake Intel CEO Pat Gelsinger has vowed not to make again with High-NA.”

Intel is trying to catch up having bungled its adoption of the most recent generation of semiconductor technology.

Will they do better this time? I suppose everyone hopes so.

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Will they do better this time? I suppose everyone hopes so.

at best, like IBM.
At…not best?..Xerox, Motorola and Kodak?

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“at best, like IBM.”

A little flavor from the sidelines here.

I work as a Systems Administrator for IBM. I can honestly say that the company is starting to turn around from a legacy hardware giant to a hybrid cloud services consulting group. When I first started working there in 2012, I questioned the trajectory, but I can say today that I’m more comfortable about the future of the company. So much so, that I signed up for the ESPP this year (something I never thought I’d do).

Phaz
Long INTC (and Longer IBM :slight_smile:

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I’ve written extensively on INTC here:
https://discussion.fool.com/down-to-under-50-per-share-from-a-hi…

And in this thread, here:
https://discussion.fool.com/the-comparison-is-not-with-ibm-but-t…
and here:
https://discussion.fool.com/tsm-has-a-location-problem-tsmc-alre…

Summary of my current position is that Intel is only starting to feel the pain.

I have suggested that Intel is on sale at bargain basement prices given it’s steady, if uninspiring, performance over the past decade. Revenues have grown a paltry 4% per year, while earnings and EPS have grown by by 7.3% and 9.9% respectively. Part of that discrepancy is explained by Intel putting its healthy cash flow toward the steady repurchase of shares, as well as a healthy return of dividends to shareholders.

I’m expecting Intel’s revenues to decline from here.

  1. They are facing increasingly stiff competition from AMD on both the client and server sides.
  2. They’ve lost their single biggest customer, Apple.

The plan is for the new foundry business to make up the gap. Intel has tried and failed to run a merchant fab before. But this time is different!

According to Intel itself, Q1 2022 results from the foundry business were negligible, and a net loss.


Net revenue and operating income (loss) for each period were as follows:
                                                      Three Months Ended
(In Millions)                                      Apr 2, 2022 Mar 27, 2021
Operating segment revenue:
Client Computing
    Desktop                                            $ 2,641      $ 2,770
    Notebook                                             5,959        6,956
    Other                                                  694          997
                                                   ------------------------
                                                         9,294       10,723

Datacenter and AI                                        6,034        4,940
Network and Edge                                         2,213        1,799
Accelerated Computing Systems and Graphics                 219          181
Mobileye                                                   394          377
Intel Foundry Services                                     283          103
All other                                                   67        1,724
                                                   ------------------------
Total operating segment revenue                       $ 18,504     $ 19,847
                                                   ========================

Operating income (loss):
    Client Computing                                   $ 2,827      $ 4,288
    Datacenter and AI                                    1,686        1,706
    Network and Edge                                       366          243
    Accelerated Computing Systems and Graphics            (390)        (176)
    Mobileye                                               148          171
    Intel Foundry Services                                 (31)         (34)
    All other                                             (265)      (2,504)
                                                   ------------------------
Total operating income                                 $ 4,341      $ 3,694
                                                   ========================

Clipping taken from p.9 of Intel’s most recent 10Q, available here:
https://www.intc.com/filings-reports/all-sec-filings/content…

The contrary thesis is that Intel is a slow moving brontosaurus in a landscape increasingly dominated by more agile raptors. To make maters worse, they are choosing to redirect all of that FCF back into a risky venture involving the establishment of Intel as a domestic chip foundry. They have committed at least $20 billion to this effort.

The dinosaur analogy is apt, but the competition are mammals. There are no other dinosaurs left at this point. The question is whether Intel will evolve into a bird or perish as a dinosaur.

I believe Intel is setting itself up as the go to supplier of chips for the US economy well into the 21st century, and I believe that current concerns about the economic and political risks of reliance on one region, or one country, for our supply of vital capital inputs is too great a risk for the American economy and American political leadership in the world.

I address this in the links at the top. Chip designers can’t simply move a design from one foundry to another. So you pick a foundry and you’re largely stuck with your choice. I expect most of the semiconductor industry will be skeptical of the new Intel Foundry Services 2.0. Intel has pulled the rug on folks in the past, and Intel’s processes are notoriously difficult to work with. The implication is that it will be difficult for Intel to achieve its goals for the IFS business.

So on both a value basis, and on a strategic basis, I believe that Intel will be a great investment going forward, especially at these depressed prices.

I disagree. Too many things have to go exactly right for this scenario to play out. I expect Intel will survive, for quite a while, but shareholders will be disappointed. I’m not sure there’s a share price that would tempt me to buy here. Certainly nothing above $30.

Regards,

  • HCF
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I address this in the links at the top. Chip designers can’t simply move a design from one foundry to another. So you pick a foundry and you’re largely stuck with your choice. I expect most of the semiconductor industry will be skeptical of the new Intel Foundry Services 2.0.

HCF,

Intel foundries will get completely around this with military orders from all the western powers. We need hardware designs that are much tougher to hack or all the military equipment in a major is only scrap as the war begins. The design companies can design for more than one foundry and more than one product. They’d be happy to have the orders.

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So much so, that I signed up for the ESPP this year (something I never thought I’d do).

If your ESPP is typical, it is always wise to use it. That’s because each round through the ESPP can reduce the basis of some of your shares by 5-15%.

What I mean is, even if you don’t want to own MORE stock, you can simply buy 100 shares of ESPP stock at a 5% discount* (at the lower price at start or end of the period) and sell 100 other shares that you happen to own. Most of the time, it doesn’t require any extraordinary timing or clever trades. You just decide in advance how many shares you want to play with (and thus how much of your paycheck you want directed to the ESPP).

  • IBM gives a 5% discount, some other companies give up to a 15% discount.
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“* IBM gives a 5% discount, some other companies give up to a 15% discount.”

It’s now a 15% discount starting this year which is what made me sign-up for the ESPP. 5% wasn’t enough back then, especially when I was concerned about the future of the old tech behemoth. Now that I’m seeing it work more towards being a “Blue” Accenture (not a perfect comparison, but close) I’m happy to hold shares and just let them grow.

“What I mean is, even if you don’t want to own MORE stock, you can simply buy 100 shares of ESPP stock at a 5% discount* (at the lower price at start or end of the period) and sell 100 other shares that you happen to own.”

I hadn’t thought of this… I’ll keep this in mind once the shares start stacking up if I need some quick liquidity. Thanks

Phaz

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When tech, and more specifically semiconductor companies, grow, GDP grows. And tech growth is nearly 100% dependent on the growth of semiconductors. So, as we enter what looks like a prolonged winter for tech and growth stocks, it seems that keeping a watchful eye on semiconductor growth would be prudent.

Nearly everything runs on semiconductors — and almost every innovative tactic we can take to optimize business and consumer activity will depend on semiconductors. If semiconductor growth accelerates, so will the economy — and we should be rooting for that whether x86, Arm or any other available instruction set.

Perhaps one of the most important trends to pay attention to is the semiconductor ecosystem at large and what is driving a wave of new entrants into chip manufacturing, from PCs to servers. In particular, the emergence of Arm as an enabler of new entrants in semiconductor manufacturing creates competition for incumbents like Intel and AMD, which have long enjoyed the unique advantage of holding the keys to x86, which account for more than 90% of PC chips, and most server chips as well.

Intel has had its share of challenges trying to convince the market it has a strategy that will return it to its glory days. I tend to think the market has been remarkably tough on Intel, but that came from a series of historical events that may require a “show us, don’t tell us” mentality among investors.

Having said that, CEO Pat Gelsinger has been aggressive in recapturing Intel’s best version of itself, and he has done that through expansion. Arm will be a part of that.

https://www.marketwatch.com/story/as-tech-melts-down-a-truth…

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If your ESPP is typical, it is always wise to use it.

Using it when I worked at Thermo Fisher Scientific almost 20 years ago (at a 5% discount) was one of the best investment decisions I’ve made.

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