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  • Guy Drori

Intel Corporation (INTC)

With a very attractive current share price and historical market leader position in chips for PCs and Data Centers, will Intel succussed of making the turnaround they presented at the Investors Day back in Feb 2022?

If so the share is extremally cheap..

Intel Corporation (NASDAQ: INTC) who once dominants the chips market mostly in the PCs, face now changing dynamics with intense competition, changing customers preference and losing market share.

The share price reflect all those worries - the share drop from ~$55 to recent price of below $30, above 45% YTD.

Intel had its record year in term of financial result in 2021 with $79M of revenues and ~$20M of net income. 2020 and 2021 had a tailwind from COVID-19 increase demand for PC and Datacenters - main revenue source for Intel.

But H1 2022 results and outlook for full 2022 reflect deterioration of Intel business, mainly in the Client Computing Group (CCG) which responsible for the sales of Desktop, Notebook and Other PC equipment. This group which counts for over 50% of sales presented a revenues decline of 19% compare to H1 2021. and Datacenters the 2nd largest group, counts for above 30% of revenues grow only by 2% compare to H1 2021, a very low growth rate compare to the market.

Intel's new CEO Pat Gelsinger strategy focus on 6 segments:

CCG - Client Computing Group

DCAI - Datacenter and AI Group

NEX - Network and Edge Group

AXG - Accelerated Computing Systems and Graphics Group

MBLY - Mobileye

IFS - Intel Foundry Services

The growth in the mid to long term should comes from the "Emerging segment" including AXG, MBLY and new revenue stream for Intel - IFS, which will open the door of Intel's manufacturing capabilities to external customers wishes to manufacture their chip under Intel's fabs and compete with giant manufacture like Taiwan Semiconductor Manufacturing Company.

Based on the strategy laid out at the Investors Day back in Feb 2022, Intel expected to return to revenue growth from 2023 and accelerate the rate to double digit by 2026.

Also with the revenue growth Intel is predicting to improve the Gross Margins to a range of 54%-58% from current levels of below 50%. And eventually generate Free Cash Flow of ~20% of revenues.

Whether or not, Intel succeed to accomplish its ambitious strategy only time will tell, but with current Market Cap of ~$115B and price to book value of 113%, solid balance sheet, management with proven track record, the potential for a significant gains and share price appreciation is something should be consider by investors and portfolio managers.

Disclosure: The article should not be considered a recommendation or a substitute for the reader's independent judgment, or an offer or investment marketing or investment advice.


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