@Bunifa Latif：$Intel(INTC)$ Intel corporation (INTC) is one of the leading microprocessor chips manufacturers mainly for computing (desktop PC chips) (c.50% of total revenue) and data center (cloud servers) (c.30-35%). The company is an integrated device manufacturer (IDMs), engaging in the design, manufacture, and sale of computer products and technologies worldwide. By geography, revenue from outside of US accounted for 82% of total revenue, with China contributing 27% of total revenue in 2021. Investment Overview INTC‘s turnaround story hinges on its ability to regain technology leadership and competitiveness. After falling behind in R&D to peers, Intel has been facing issues with delays in launching new products. This resulted in its inability to meet demand and hence losing market share to AMD over the past few years. To resolve this, Intel's new CEO announced the “IDM 2.0” strategy in 2021. This includes the massive capex plan to regain its technology leadership and become a major foundry in the U.S. and Europe, and also to expand Intel's use of external foundries for some of its products. The recently approved CHIPS Act could help INTC to ease some capex burden. Roadmap on track to regain process leadership, and obtain operating leverage to achieve higher margins. INTC plans to deliver five new process nodes in four years to regain its leadership position by 2025. The latest is Intel 7, which is comparable to AMD’s most advanced chip, and management recently affirmed its roadmap is on track, or ahead of schedule. In addition, Intel is the one of largest companies (by revenue) in the semiconductor industry and has a more integrated value chain than competitors. Therefore, INTC’s operating margins could expand over the next few years, thanks to its high operating leverage structure. The successful execution of these plans should enable Intel to regain investor confidence. Growth and margins under pressure over the short to medium term: Despite the on-track roadmap, its long-awaited Intel 7 is still having technical issues and will not generate revenue materially until 2023 as per latest management guidance. In addition, there are several headwinds such as economic downturn and end of the WFH era, which could adversely impact PC demand (c.50% of total revenue) and server demand (c.30%) in the short to medium term. Furthermore, the muted revenue growth outlook also puts margins under pressure, given its high operating leverage structure. Further delays in new products. INTC has faced a series of manufacturing issues since 2016. INTC reached 14nm production in 2014 and launched 10nm to pre-production in 2016 but production was delayed due to its low yields. Similarly, for its latest and most competitive product, 7nm or Intel 7, the launch plan has also been pushed out into 2023. Concerns regarding the timeliness of product launch remain and could impact the future growth and its continuing market share loss to AMD. Though we remain constructive on INCT's IDM 2.0 strategy, there are still concerns on execution risks which may take longer to resolve than planned. Re-rating catalysts may only emerge if INTC can show good development on its IDM 2.0 strategy and overcome any manufacturing constraints. @TigerStars DYODD Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
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