Company Reports

We expect Intel will remain the market share leader in central processing units, or CPUs, in PCs and servers for years to come. However, Intel’s best days are likely behind it, as it currently has a chip manufacturing disadvantage against Taiwan Semiconductor, or TSMC, and its processor partners, such as AMD, Nvidia, and Apple. We think Intel’s aspirations to regain parity with TSMC is the right path forward but faces some execution risk. Even if successful, Intel’s competitors will be stronger than when the firm was dominant a decade ago. In turn, we assign Intel a no-moat rating, a disappointing erosion from previous narrow- and wide-moat ratings.

Intel reported first-quarter results in line with our expectations but provided investors with a second-quarter forecast that fell short of FactSet consensus estimates. Shares fell about 8% after hours, a continuation of the near-term decline in Intel’s share price that started earlier this month when the company disclosed that its foundry business has been incurring greater losses, and might take longer to reach breakeven, than previously anticipated. We reduce our fair value estimate for no-moat Intel to $35 per share from $40, in part due to the softer near-term results, as well as lower long-term gross margin estimates given the steeper climb that we foresee for Intel’s foundry business to break even.

Intel's fourth-quarter results were modestly ahead of our expectations but provided investors with a soft first-quarter forecast, with stronger-than-usual seasonal headwinds and inventory corrections in some noncore businesses. With Intel’s stock up 45% in the past three months—versus a 15% rise in the Morningstar Global Markets Index— we suspect that investors were seeking a brighter outlook, particularly in Intel’s foundry business and artificial intelligence accelerator pipeline, and we’re not too stunned to see shares fall as much as 10% after hours. We keep our $40 fair value estimate for no-moat Intel and still do not see an attractive margin of safety for investors today.

We expect Intel should remain the market share leader in central processing units, or CPUs, in PCs and servers for years to come. However, Intel’s best days are likely behind it, as it is at a chip manufacturing disadvantage against Taiwan Semiconductor, or TSMC, and its processor partners, such as AMD, Nvidia, and Apple. We think Intel’s aspirations to regain parity with TSMC is the right path forward but faces significant execution risk. Even if successful, Intel’s competitors will be stronger than when the firm was dominant a decade ago. In turn, we assign Intel a no-moat rating, a disappointing erosion from previous narrow- and wide-moat ratings.

No-moat Intel reported third-quarter results and provided investors with a fourth-quarter outlook that were ahead of our expectations, as its PC processor business recovers from a previously dreadful demand environment. We raise our fair value estimate to $40 from $35, and even with shares up about 8% after hours, we view shares as slightly undervalued.

We maintain our $35 fair value estimate for no-moat Intel as the company announced its intention to run its programmable solutions group as a stand-alone business that will report separate segment financial results in 2024 and, more importantly, will be brought to an IPO in the next two to three years. Intel may also bring private investors into the PSG spinoff. The move resembles Intel’s successful spinoff of shares of Mobileye. We like the move for Intel as it will raise capital for the company and narrow its focus on achieving chip manufacturing process leadership. The shares were up about 2% on the news, and we view them as fairly valued.

We maintain our $35 fair value estimate for no-moat Intel after assessing management’s keynote address and investor question-and-answer session as part of its “Intel Innovation” event. The stock sold off 4% after management commented that gross margins won’t expand by “hundreds and hundreds of basis points next year.” FactSet consensus estimates were calling for over 500 basis points of expansion next year. Such comments may imply modestly worse gross margins than what we’re projecting in 2024 but don’t alter the rebound we are anticipating in long-term adjusted gross margins into the high 50% range by 2027 (albeit still short of Intel’s 60% long-term target). With the selloff, we view Intel’s shares as fairly valued.

We downgrade our economic moat rating for Intel to none from narrow, while retaining our $35 fair value estimate. Our moat downgrade comes from the deterioration in Intel’s returns on invested capital in recent years, and we do not foresee the company generating excess returns on capital for the next few years, either. This considers the firm’s manufacturing struggles and hefty investment into new manufacturing processes (even when considering a host of government incentives).

We expect Intel should remain the market share leader in central processing units, or CPUs, in PCs and servers for years to come. However, Intel’s best days are likely behind it, as it is at a chip manufacturing disadvantage against Taiwan Semiconductor, or TSMC, and its processor partners, such as AMD, Nvidia, and Apple. We think Intel’s aspirations to regain parity with TSMC is the right path forward but faces significant execution risk. Even if successful, Intel’s competitors will be stronger than when the firm was dominant a decade ago. In turn, we assign Intel a no-moat rating, a disappointing erosion from previous narrow- and wide-moat ratings.

Narrow-moat Intel reported second-quarter results and provided investors with a third-quarter outlook that, while still ugly, were better than expected and which we view as a bottom for the company, as the PC inventory correction appears to be winding down. We’re also encouraged that Intel’s various manufacturing advancements, such as Meteor Lake’s arrival in the fourth quarter, are still on track, as we think it is critical for Intel to achieve its aggressive target of five node transitions in four years. We maintain our $35 fair value estimate and view shares as fairly valued.

Intel remains the market share leader in the integrated design and manufacturing of microprocessors found in PCs and servers. Historically, the firm supplied the most powerful CPUs, though it has several manufacturing missteps in recent years that has caused the company to lose market share. We think the company will eventually catch up with its rival Taiwan Semi (TSMC) for advanced manufacturing, but the turnaround will take some more time and we anticipate further share loss and downbeat financial results out of Intel for the next year or two.

Intel reported first-quarter results slightly ahead of our expectations, though the chipmaker remains challenged by weak PC and server demand and competitive pressure from AMD. The firm continues to make progress on its IDM 2.0 strategy to fix its manufacturing process technologies, but we expect Intel’s financial results to remain under duress until 2024 as it navigates margin pressure and soft end-market demand.

On Feb. 22, Intel announced its board of directors decided to reduce its quarterly dividend by about two thirds to $0.125 per share from $0.365 per share. The firm has been plagued by weak PC demand, competitive pressures from a resurgent AMD, and ongoing execution issues that have culminated in market share loss and margin compression. Although we still support Intel’s IDM 2.0 strategy to fix its manufacturing, we view this dividend cut as necessary given the material capital expenditure requirements of its turnaround plan. Intel’s dividend yield had risen north of 5% prior to the cut, which would have been tough to maintain given its weaker cash flow generation in the near term. We estimate Intel’s capital expenditures will amount to at least $20 billion in 2023. Longer term, we expect the firm’s net capital intensity to be about 30% of sales. The firm’s roughly $6 billion in dividend payouts was valuable cash that we think is better served by being put toward investments in new process technologies and R&D.

Intel is the market share leader in the integrated design and manufacturing of microprocessors found in PCs and servers. Historically, the firm supplied the most powerful CPUs, though it has had numerous missteps in recent years. The data centers used to facilitate the information stored, analyzed, and accessed by various front-end devices are mostly run with Intel server chips.

Intel’s fourth-quarter results were challenged by weak PC and server demand, competitive pressures from a resurgent AMD, and lingering execution issues culminating in market share loss and margin compression. While we remain positive on Intel’s IDM 2.0 strategy to fix its chipmaking prowess, we believe the firm’s financial results will be under duress until 2024 at the earliest. We lower our fair value estimate to $35 per share from $45 as we incorporate lower expectations for 2023. Shares fell 10% during after-hours as we suspect the market is skeptical Intel will be able to rectify its manufacturing issues. Although shares of narrow-moat Intel are modestly undervalued relative to our updated fair value, we believe narrow-moat AMD ($115 fair value estimate) looks more attractive at current levels given our expectations for strong share gains in the data center CPU market despite tepid macroeconomic conditions.

Intel is the market share leader in the integrated design and manufacturing of microprocessors found in PCs and servers. Historically, the firm supplied the most powerful CPUs, though it has had numerous missteps in recent years. The data centers used to facilitate the information stored, analyzed, and accessed by various front-end devices are mostly run with Intel server chips.

Intel’s third-quarter results were negatively affected by weaker end-market demand, competitive pressures, and ongoing execution issues leading to continued market share loss and margin compression. Management announced an assortment of cost-reduction efforts aimed at $3 billion in cost savings in 2023, growing to $8 billion-$10 billion annualized by the end of 2025. We believe certain noncore businesses such as Intel’s graphics segment will see reduced head count. In addition to a weaker PC market, we expect Intel’s data center business to continue suffering share loss to AMD as the former’s Sapphire Rapids server CPU is delayed until early 2023 and AMD is set to launch its latest its 5-nanometer-based Genoa server CPUs later this year.

Intel is the market share leader in the integrated design and manufacturing of microprocessors found in PCs and servers. Historically, the firm supplied the most powerful CPUs, though it has had numerous missteps in recent years. The data centers used to facilitate the information stored, analyzed, and accessed by various front-end devices are mostly run with Intel server chips.

On Aug. 23, Intel announced a new co-investment program with Brookfield Asset Management to help fund Intel’s manufacturing expansion in Arizona and thus accelerate the firm’s IDM 2.0 strategy. Specifically, Intel will fund 51% and Brookfield will fund 49% of the $30 billion investment. Management has been stressing it expects to offset part of the hefty capital expenditure outlays required for its internal and foundry manufacturing aspirations via smart capital offsets, or government subsidies, private investment programs, and foundry customer prepayments.

We are lowering our moat rating for Intel to narrow from wide, as we are no longer certain that the firm can generate excess returns on capital over the next few years. In concert with our moat rating downgrade, we are lowering our fair value estimate for Intel to $50 per share from $56 per share, as we reduce the time frame we expect Intel to generate excess returns on invested capital with certainty. Our moat downgrade concedes that Intel’s recent financial performance and execution was worse than our prior expectations. However, our outlook for Intel has not materially changed, as we remain positive on Intel’s IDM 2.0 strategy to get its manufacturing back on track (which will support more competitive products). We still view shares as undervalued for long-term, patient investors but acknowledge that the next several quarters will be highly tumultuous for the firm.