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Company Description and Qualitative Analysis
Intel Corporation designs, manufactures, and sells semiconductor chips, microprocessors, microchips, motherboard chipsets, network interface controllers, integrated circuits, flash memory, graphic chips, embedded processors, and other hardware found in computers and similar products. Intel also provides Internet of things products such as high-performance computing solutions for targeted verticals and embedded applications, computer vision and machine learning-based sensing, data analysis, localization, mapping, and driving policy technology. Intel is the world’s largest semiconductor chip manufacturer by revenue and has collaborations with UC San Francisco’s Center for Digital Health Innovation, Fortanix, and Microsoft Azure to establish a computing platform with privacy-preserving analytics to accelerate the development and validation of clinical algorithms. Intel is a chip making giant, but has had a rough go over the past five quarterly earnings reports. Although there were some bumps in the road, Intel was still the number 1 semiconductor vendor by revenue in 2020, in part due to their close partnership with Windows software maker Microsoft. With the growth of smartphones and other computing devices, the demand for Intel’s computer chips has diminished, but Intel maintained 15.6% market share last year, up 3% over the second lending vendor Samsung. With more chips getting into every device, Intel’s history makes them primed for growth.
Quantitative Analysis
At the time of this writing (3/27/2022), INTC is trading at $51.83 with a 52 week range of $43.63 - $68.49 and a market cap of $211.05B. In Q3 of 2021, GAAP revenue was flat year over year at $19.2 billion and non-GAAP revenue was $18.1 billion which were both down from the last time I broke down intel. You can find it here. GAAP earnings-per-share was $1.68 and non-GAAP EPS was $1.67. Return of equity (ROE: Net Income / Total Equity *100) of INTC is 22.67% and net margin (net income / revenue) is 25.14%. The price to earnings (price per share / earnings per share) ratio was 10.66 and the debt to equities ratio (total liabilities / total equity) is 0.77. The dividend yield for INTC is 2.72%. This financial analysis was done using financialstockdata.com (sign up using our promo code GCI here). You can view INTC’s Q3 2021 earnings here and their 2021 Annual Report here.
Financial Stock Data allows users to analyze a company’s financials and qualitative factors such as leadership better than any other platform available. You can use the same tool as the pros for 50% off using our promo code GCI at checkout. Be sure to sign up for Financial Stock Data HERE.
Bullish Thesis
Here are three points to support the bullish thesis updates:
Chips in Everything: From laptops to cars to kitchen appliances, computer chips are being added to nearly everything. As the world moves more toward “smart” devices and the Internet of Things (IoT; interconnected devices), demand for processor and graphics chips will continue to rise. As an existing giant in the space, Intel has a “first mover” advantage, existing infrastructure in place, network connections, and time-proven competency. These advantages will help Intel remain at or near the top of the chip manufacturing food chain. This still holds true and it seems the trend is continuing. Even with the supply chain issues, chips are still dominant.
Dominant Market Share Versus Competition: One of Intel’s primary competitors in chip manufacturing is Advanced Micro Devices (AMD). Although AMD has recently been eating into Intel’s dominant market share, Intel remains well ahead of its rival in desktop PC, mobile/notebook, and server unit processors. For a better picture of the overall market, research firm Omida included all x86 units - this captures IoT and semi-custom devices not captured in PC/Mobile/Server breakdowns - and found that AMD is beginning to eat into Intel’s market share. However, a similar trend occurred in 2005-2009 before dying back down. Time will tell whether this uptick in AMD will continue or meet the same end it met nearly 15 years ago. The market share of Intel has been slightly decreasing, but INTC’s history bodes well for growth. Hopefully Intel can turn it around and begin to regain some market share.
GPU Production: Although the bulk of Intel’s revenue is generated through PC and data center processors, it recently relaunched discrete GPU production. Intel has tried several times in the past to enter the GPU market, but has never seemed to gain traction. Although they will be competing against the likes of Nvidia and AMD, Intel has an opportunity to create and develop a revenue stream that would add to their already strong moat. If Intel can finally get their GPUs to stick, look for the company’s value to increase.
Bearish Thesis
Here are three points to support the bearish thesis:
Lack of Recent Success: Intel has not had any recent success the past five quarters, which should be taken with a grain of salt as it was the number 1 semiconductor based on revenue in 2020. Even with that, Intel has yet to see any real growth in the past five quarters. This is alarming in a rapidly growing industry with increasing demand and with the reputation that Intel has, it should be able to show some growth. New leadership is in place with hopes to lead Intel in a new direction and help with quarterly and yearly growth but time will tell if that happens. It seems like this trend is continuing and revenue has continued to decrease. Intel has not figured out a way to turn it around, but the industry is growing as a whole so there is hope that this can turn around.
Limited Big Name Suppliers: After Apple announced it will not use Intel’s chips anymore, the only big name users of Intel’s products is Microsoft. This will hurt Intel’s overall revenue and has created a crack in Intel’s lead as the top semiconductor producer. With increased competition, such as Nvidia (which we broke down last week find the article here) this will hurt Intel going forward. It is difficult for large corporations to continually innovate and as technology improves and the demand increases, more companies will come into the game. With more competition and the lack of the backing of big name suppliers, this will put a dent in Intel’s lead going forward. Sadly, Intel has not gained any additional big name suppliers and has simply had their business shrink over the past couple years with no positive signs looking forward.
Chip Shortage: It is tough to ignore the chip shortage currently going on in the short term. According to CNBC, the chip shortage may last for 2 to 3 more years. The shortage has affected car prices, appliances, and just about everything that has a “smart” aspect to it. This is causing more companies to reconsider their chip manufacturer and potentially develop their own chips. Self development of chips will eliminate the need for companies like Intel, unless Intel can prove that their chips are superior and continually are superior. This will be an interesting next two to three years for Intel and if they can hold their lead through this shortage. Of all the negative points, this is the most surprising. In the two years of the COVID pandemic it is alarming that the industry cannot figure this issue out.
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Brandon
Disclosure: The article was written by Brandon Keys, and it expresses the author's own opinions. I am not receiving compensation for it. I have no business relationships with any company whose stock is mentioned in this article. The information presented in this article is for informational purposes only and in no way should be construed as financial advice or recommendation to buy or sell any stock. Brandon is not a financial advisor. I encourage all readers to do further research and do your own due diligence before making any investments.