Ugly Setup
The end result with AMD and Nvidia now reaching revenue rates of $35 billion is substantial market share lost by the chip giant. The forecasts are for more lost market share ahead with Intel reporting declining revenues in the next year and AMD and Nvidia ringing in near double-digit revenue gains for years ahead.
Intel didn't repurchase any shares in the quarter as the company plans to ramp up capital spending to build new fabs. The weakened results are more precarious with the $35.6 billion debt load and net debt of $23.7 billion.
The chip giant still forecasts generating $12.5 billion in free cash flow this year, but more spending combined with weaker margins will squeeze these cash flows. Intel forecasts spending up to $19 billion in capex this year and the new capital spending will cut further into cash flows.
Just a few months ago, CEO Pat Gelsinger unveiled a new fab campus would cost anywhere from $60 billion to $120 billion over the next decade. The new fabs are part of the IDM 2.0 strategy which would provide Intel with multiple modules capable of processing wafers for clients such as $QCOM.US$ and $IBM.US$. The biggest question is how much the spending will boost the current annual capital spending levels because Intel could quickly watch the current FCFs disappear. The higher costs might not come with meaningful revenue growth as these major chip competitors may ultimately bulk at using Intel as a manufacturer.
The stock ran to $56 on more hype as $TSM.US$ had blowout numbers on strong fab demand. Intel is now poised to test the yearly lows below $50. The chip giant will be lucky to earn $4 per share going forward with the higher spending and major pressure on gross margins. The stock traded at nearly 14x 2022 EPS estimates heading into this quarterly report despite no growth and the higher risk from additional spending.
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HUSSAIN SAJWANI : If you look at the past few years Intel stock ALWAYS goes down after the earnings announcement despite whatever earnings are reported. They continue to earn billions, have extraordinary FCF and have now looks to be very capable management. Analysts love to hate Intel and they do. Fact remains that they are close to an 80 billion dollar profitable company in an industry that will be expanding for years to come