Intel (Nasdaq: INTC) At one time it was considered a stable tech stock that received reliable returns. Its position as the world’s largest x86 CPU manufacturer for PCs and data centers gave it a boost, and its strong cash flow growth comfortably funded its large buybacks and dividends.
However, shares of Intel have fallen nearly 15% this year as the Philadelphia Semiconductor Index has risen 50%. Let’s see why Intel has influenced the wider industry, and let’s see if it can hire better next year.
How Intel lost its mojo
For decades, Intel has led the CPU market by adhering to the “Moore Law”, predicting by its co-founder Gordon Moore that the number of transistors in the same area of silicon would double every two years. This was the foundation of a two-year “tick-tock” cycle that ran Intel’s business for half a century.
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In each “tick” l, Intel shortened a chip to a smaller size. In each “tkk” update, the chip was upgraded but the size remained the same. However, Intel found it increasingly difficult to make small chips in its own foundry. And in recent years Moore’s law has faded.
As Moore’s law was completed, Intel’s foundry fell behind TSMC (NYSE: TSM), The world’s largest contract chipmaker, in the “process race” to make smaller and more power-efficient chips. As a result, “fableless” chipmakers who have outsourced their chips to TSMC – including AMD (Nasdaq: AMD) And Apple, Which recently replaced Intel’s muck chips with its own silicon – began producing more advanced chips than Intel.
In late 2018 and throughout 2019, Intel struggled to increase production of its new 10nm chips. Those difficulties hamper the production of its 14nm chips, leading to a massive shortage of CPUs for PC manufacturers. At the same time, a revived AMDA launched its new pay-generation Zen CPU, which improved the poor single-threaded performance of its previous bulldozer-class CPU. AMD faced no shortage as it outsourced its chips, and many PC manufacturers began reusing its cost-effective CPU.
According to Passmark Software software, between the fourth quarter of 2016 and 2020, AMDA increased its share of the CPU market from 17.8% to 38.4%, while Intel’s share fell from 82.2% to 61.6%.
But the pain doesn’t end there. In July, Intel stunned investors by acknowledging that its new 7nm process was “trending nearly twelve months” behind its internal target – meaning that the next-gen chips would not arrive until 2022 and 2023. By comparison, TSMC is already producing 7nm chips for AMD and other chipmakers, and it will make 3nm chips by 2022.
But how bad was the damage?
Intel’s situation looks dire, but the company is still growing. Its revenue and revenue grew 2% and 6% last year, respectively, as the growth of its data center chips will offset its supply issues in the PC market.
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In the first nine months of 2020, Intel’s revenue and earnings both grew 12% year-over-year. Advanced use of cloud services during the epidemic boosted its data center revenue while increasing demand for its chips, while the extra carrying of PCs for remote work and learning online learning temporarily increased its client computing revenue.
For the full year, analysts expect Intel’s revenue to grow by 5% and its earnings to be eroded by the tailwinds due to the epidemic. Next year, they expect its revenue and earnings to decline by 6% and 7%, respectively, as it lags far behind AMD and TSMC.
We should always be skeptical of analysts’ predictions, but it’s hard to ignore Intel’s latest mistakes. Intel CEO Bob Swann, a former CFO who took over the helm in 2018 following the sudden resignation of Brian Kriznich, has focused primarily on reducing the company’s capex, increasing its buybacks, and shifting its focus to its lucrative N&D memory chipmaking business. Have done.
That move suggests that Swann is more interested in economic engineering than chip engineering – and that myopic strategy could cause Intel to fall further behind AMD. Meanwhile, Swan’s two leading R&D plays – Independent GPU And automotive chips – perhaps not generating enough revenue to offset its ongoing challenges in the CPU market.
But can we consider Intel an invaluable revenue stock?
Intel trades just 11 times the forward earnings and pays 2.6% of the forward dividend yield. It has spent only 27% of its free cash flow on its dividends over the past 12 months, giving it plenty of room for future tourism.
That low valuation and respectable yield limits Intel’s negative potential, but there are many other cheap dividend stocks to buy in this growth-oriented market. Intel will probably not re-attract the boom until it solves its R&D problems, decides to go “fables” like AMD, or hire new leaders to breathe fresh life into its aging, insulating business – hence the stock Better to stick with chipmakers that run better for now.
