Business Strategy and outlook
Intel is the leader in the integrated design and manufacturing of microprocessors found in PCs and servers. Intel historically differentiated itself first and foremost via the execution of Moore’s law, which predicts transistor density on integrated circuits will double about every two years, meaning subsequent chips have substantial power, cost, and size improvements. This scaling advantage was perpetuated through higher-than-peer-average R&D and capital expenditure budget that allows it to control the entire design and manufacturing process in an industry .
As cloud computing continues to garner significant investment, Intel’s data center group will be an indirect beneficiary. Mobile devices have become the preferred device to perform computing tasks and access data via cloud infrastructures that require large-scale server build-outs. This development has provided strong tailwinds for Intel’s lucrative server processor business. Morningstar analyst believe Intel will experience continued growth in the data center, though we note competition from AMD and customers designing their own ARM-based silicon are potent risks.
The proliferation of mobile devices has come at the expense of the mature PC market, Intel’s historic stronghold, with ARM and its cohorts joining AMD as chief rivals. The rise of artificial intelligence has also unleashed a new competitor in Nvidia for specialized chips to accelerate AI-related workloads. Consequently, Intel has built a broad accelerator portfolio via the acquisition of Altera for FPGAs, Mobileye for computer vision chips used in cars, and Habana Labs for AI chips.
We Like Intel’s Appointment of Micron CFO Dave Zinsner as its New CFO; No Change to FVE
On Jan. 10, Intel announced it appointed David Zinsner as CFO, thus filling the vacancy created by current CFO George Davis’s planned retirement in May 2022. Morningstar analyst think that Zinsner is the right CFO to manage this lofty spending budget, as Micron has successfully executed its new technology ramps on an average capex of $9.2 billion over the past four years. Morningstar analyst are maintaining our $65 fair value estimate for wide-moat Intel; shares appear undervalued and present an attractive buying opportunity for long-term, patient investors.
Financial Strength
Intel typically operates with ample liquid cash reserves. At the end of 2020, the firm held about $36.4 billion in total debt and nearly $24 billion in cash and cash equivalents, short-term investments, and trading assets. Morningstar analyst expects the firm generates sufficient cash flow and has ample resources to meet its debt obligations, capital expenditure requirements, potential acquisitions, and shareholder returns.
Bulls Say
- Intel is one of the largest semiconductor companies in the world and holds the lion’s share of the PC and server processor markets. The firm has sustained its position at the forefront of technology by investing heavily in R&D, and this trend should continue.
- Intel has made a string of savvy acquisitions to build its Artificial Intelligence and automotive offerings, including Altera, Mobileye, Habana Labs, and Movidius.
- The data center group has indirectly benefited from the proliferation of mobile devices. Server processor sales will be the main driver of growth in the near future
Company Profile
Intel typically operates with ample liquid cash reserves, which we believe is justified as an offset to the semiconductor industry’s cyclical nature in general and Intel’s higher capital intensity in particular. At the end of 2020, the firm held about $36.4 billion in total debt and nearly $24 billion in cash and cash equivalents, short-term investments, and trading assets. We think the firm generates sufficient cash flow and has ample resources to meet its debt obligations, capital expenditure requirements, potential acquisitions, and shareholder returns.Intel’s dominant manufacturing operations require massive capital outlays for expensive equipment, fab construction, and the maintenance of a clean room environment. Morningstar analyst estimates utilize historical patterns and the expected progression of Moore’s law to attain an average annual capital expenditure of $14 billion over the next five years. Of this outlay, 70% is for maintaining existing capacity, with the remainder used for process development for the 7-nanometer process node and beyond.
(Source: Morning Star)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.