Intel doesn't exactly face the best prospects for the future. What could affect the stock price?
Intel has been facing all sorts of issues lately that it has decided to fight, so as it has begun, other potential problems are starting to appear on the horizon that could put further pressure on the company, and with it, pressure on the stock price. Let's take a look today, where do I see opportunities for this company in the future, and again, potential problems?
Intel $INTC was one of the most innovative companies before the dot com bubble burst. It stood alongside big players like Microsoft $MSFT. But lately, it's looking more like the company has faded into obscurity. So today, let's take a look at what actually happened to the company.
The rise of competition
The company used to be a leader in the semiconductor industry, but now it looks like Intel is getting rather hammered with its chips. There have been plenty of companies that have managed to develop better chips than Intel $INTC. As time has moved on, the company's chips have become obsolete, and customers have started using more modern chips from competitors.
But how is it possible that someone was able to design, and even manufacture, more modern chips than a company that has market dominance and long-term know how? There is a very simple answer. The other competitors were not limited by their manufacturing capabilities. They designed their chips and had them manufactured by a third party. That third party is Taiwan Semiconductor Manufacturing $TSM . This company, as the name implies, focuses only on chip manufacturing. So it does not do any other things, and it only concentrates on making chips according to the designs that it gets from its customers.
So you can say that Intel has basically outpaced the combination, and also the cooperation of the competition with just the aforementioned chip maker. Why was that? Intel $INTC had to spread its efforts, and also investments, across multiple disciplines. For example, it invested in manufacturing, it invested in research for new chips, and it had to employ many more people, build research centres, laboratories, production halls, etc., as part of such a broad operation. In short, it was very capital-intensive for the company, and it spread its efforts across multiple tasks. Whereas Taiwan Semiconductor Manufacturing concentrated its efforts and investments on only one thing, and that was the actual chip production. Therefore, the company managed to overtake Intel in production capacity and technology. Well, Intel's competitors $INTC, such as $AMD, $NVDA and others, it was clear to them that if they set up their own production, they had no chance of catching Intel or it would be very difficult. Therefore, these companies manufacture chips, or even parts of chips, using a supplier, which is Taiwan Semiconductor Manufacturing $TSM.
The fight is on
Over the years, there have been several CEOs at Intel who have not shown any bravura performance and have let this giant fall asleep. But now Intel has begun to wake up. Pat Gelsinger, who has been in management positions practically since the beginning, has returned to the company as a director, so he knows very well what the company looked like in its heyday.
The changes didn't take long. Since Pat Gelsinger took office, the company has started to resonate again after a long time. The first thing the company did to draw attention to itself was to announce the construction of new production halls, and the upgrading of existing production halls to help it regain momentum and accelerate its progress. In fact, the company also announced last year that it plans to develop, and manufacture 2nm chips during 2024 to 2025. Yes, that's a bit of a stretch, but it's at least a hint of what the company is up to.
By building new production halls, the company also wants to focus on, and move closer to the business model of the just mentioned Taiwan Semiconductor Manufacturing $TSM . Of course, all these moves by the company also have a significant impact on the company's results. That's why the company reported disappointing results last year, in short, it is now trying to invest in itself as much as possible. In fact, the new CEO is well aware that Intel has pretty much slept through the times and has become petrified. In short, when you start building and modernising halls at a cost of around USD 50 billion, you have to finance that construction somehow, of course.
Recently, the US has also woken up to the fact that it has found that Asia has overtaken it in chip production, and it has also, of course, started to act, because it wants to be the main country where chips will be produced. That is why various forms of aid are in play, and subsidies for the construction of new production halls for high-end semiconductors.
It can therefore be assumed that Intel will take advantage of this opportunity, and thus reduce its expenditure on this production precisely because of these programmes. Given that there are not many pure-play chip manufacturers in the US, it can be assumed that Intel could be entitled to a majority share of these support programmes.
Another problem on the horizon
These support programs may now be in jeopardy as the US is currently dealing with the debt ceiling issue.
https://www.youtube.com/watch?v=mWsWqZpU-wc
But what impact could this have on these subsidies, and Intel overall? It's quite simple. When the US hits the debt ceiling, there will be a move to raise it. While the Democrats are taking the position at the moment that they will raise the debt ceiling with no problem, the Republicans have made their vote to raise the debt ceiling conditional, by cutting government spending.
So if the Republicans get their way, the US Government will have no choice but to cut the spending side, which should include these support programmes for the semiconductor sector. At that point, the question would be which spending the government decides to cut. If these programs are cut, it could mean increased construction spending for Intel, and an overall slowdown in the entire run. In short, these programs could be a very welcome help to Intel right now.
Conclusion
Personally, I think that Intel has definitely not said its last word yet. From a short-term perspective, this company now looks like a money pit perhaps, so you cannot invest in this company with an investment horizon of one or two years. This is a long-term investment, and a really long-term investment.
Personally, I certainly don't expect any improvement in the company's results in the coming year, precisely because of the extensive investment in restructuring the company. I have the company in my portfolio, but as a really long-term bet. As for those support programs, they can be a big help to Intel. So now the question is whether they will be cut out as part of the debt ceiling increase.
WARNING: I am not a financial advisor, and this material does not serve as a financial or investment recommendation. The content of this material is purely informational.
Sources:
https://insmart.cz/unaveny-gigant-ve-valce-sam-se-sebou-dokaze-intel-znovu-dobyt-svet/
https://www.wsj.com/articles/chips-semiconductors-manufacturing-china-taiwan-11673650917