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Intel: "Complete Devastation" and a "True Disaster"

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Here are some headlines on SeekingAlpha, a popular investing news service:

  • Intel: Complete Devastation
  • Intel: A True Disaster
  • Intel: You Were Warned
  • Intel: $15 Before $40 (referring to the share pice, which is presenting in the mid-20s)

These authors are speaking as investors, and it’s worth stating the obvious: a company can have marvelous technology yet be poorly managed financially.  But Intel is not doing well.

Revenue was down 28% year-over-year: OUCH!   Earnings dropped by 60% so bottom line is even worse.

Intel has been losing ground to AMD, which is set to overtake Intel’s market cap (again).  Intel is still paying out $1.5 billion a year in dividends, which will likely come under pressure.

Intel has been spending mightily to boost its foundry business, dropping $24 billion on new equipment last year, a jump from normal mid-teens spending.  Rivals AMD and Nvidia have outsourced their manufacturing.

It’s a fundamental strategy choice.  AMD and Nvidia and others would say they want to focus on design rather than the complexities of manufacture.  Intel feels there’s an advantage in owning the system “end to end,” though it does outsource about 20% of its non-CPU manufacturing.

For decades, Intel had a technological edge, but TSMC and Samsung have caught up.  Intel stumbled on its 10nm process, which was supposed to vault Intel ahead of competition.  Problems and delays allowed competitors to catch up and the vaulting vanished.  Then 7nm was going to be their edge, but that stumbled as well.

Today, Intel is in an unenviable place.  Its manufacturing prowess has declined from previous heights where everyone else was catching up to a reality in 2023 where Intel is the one catching up.  It has billions in legacy factories and needs billions every year to maintain and modernize them.  So not only does it have to design next-generation awesomeness, it also has to run a massive foundry business.  A misstep in either side of the house could easily swamp the other financially.

There’s a lot of security headaches as well, but the fundamental problem is that Intel has lost its edge.  There are a small number of players who can participate in this market so Intel is not going to fall off the planet any time soon but it’s sure painful to be an Intel stockholder right now.




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