Intel is on a path to reclaim its position as a leading chipmaker under CEO Pat Gelsinger’s leadership. The company plans to introduce its 20A (2nm) process in 2024 and 18A (1.8nm) process by 2025, marking significant advancements. Recent milestones, such as the release of the 1.0 PDK for 18A, demonstrate progress. Intel’s expansion into the foundry business aims to capture a significant market share, targeting $15 billion in revenue by the end of the decade. Additionally, Intel’s Gaudi 3 AI accelerator and AI PC shipments are set to enhance its market position. However, financial challenges, including disappointing earnings, dividend suspension, and cost-cutting measures, present near-term obstacles.

Achieving Milestones

Intel’s recent earnings call provided compelling evidence of the company’s progress. Gelsinger announced the release of the 1.0 Process Design Kit (PDK) for the 18A process last month, a crucial milestone that enables customers and partners to start designing chips for this advanced process node. Additionally, Intel’s Panther Lake processor for client computers and the Clearwater Forest processor for servers, both on the 18A process, have achieved power-on and are on track for launch next year. This progress underscores Intel’s commitment to delivering on its ambitious roadmap, with the 18A process marking Intel’s fifth new process launch in just four years.

The Foundry Game-Changer

Intel’s expansion into the foundry business is a significant strategic move that positions the company for future growth. Historically, Intel only manufactured chips for its own products. However, by launching a foundry business, Intel aims to produce chips for other leading semiconductor design companies worldwide. This strategic shift could potentially elevate Intel to a trillion-dollar valuation in the future.

During the earnings call, Gelsinger reaffirmed Intel’s target of achieving $15 billion in foundry revenue by the end of the decade. Currently, Intel has a pipeline worth $15 billion in lifetime deal value from committed foundry customers. While the near-term opportunities are focused on advanced chip packaging, the release of the 18A PDK has generated increased interest from potential customers, signaling a promising future for Intel’s foundry business.

The AI Accelerator

Intel’s entry into the AI chip market, particularly with its Gaudi 3 AI accelerator, is another promising development. The upcoming launch of the Gaudi 3 AI accelerator later this quarter is expected to help Intel capture market share currently dominated by Nvidia. According to Intel, the Gaudi 3 promises to deliver roughly twice the performance per dollar in both inference and training compared to Nvidia’s H100. With Nvidia delaying the launch of its new Blackwell accelerators by several months, Intel has a prime opportunity to make significant inroads in the AI market.

Furthermore, Intel is making notable advancements in the AI PC category. The company has already shipped more than 15 million Windows AI PCs since December and is on track to ship over 40 million by year-end. The upcoming Lunar Lake and Arrow Lake processors will further extend Intel’s leadership in this space, with Panther Lake on 18A set to deliver even more improvements next year.

Geopolitical Advantage

In the face of geopolitical concerns over the concentration of advanced chip manufacturing in Taiwan, Intel’s focus on U.S. and European production facilities offers a strategic advantage. The Biden administration, as well as potential future administrations, have emphasized the importance of domestic semiconductor production. This aligns perfectly with Intel’s strategy and positions the company favorably amidst global supply chain uncertainties.

Near-Term Challenges

Despite the positive developments, Intel’s recent earnings report and guidance revealed some near-term challenges. The company faced headwinds from weaker-than-expected gross margins, primarily due to the accelerated ramp-up of AI PC products and the transition of Intel 4 and Intel 3 wafers from Oregon to Ireland. While these factors impacted near-term margins, they are part of a strategic move that will yield long-term benefits, including $1 billion in capital savings and improved gross margins as the Ireland fab scales up.

Earnings Miss and Financial Performance

Intel’s Q2 2024 earnings report revealed disappointing financial results. The company reported a revenue decline of just under 1% year-over-year, missing expectations by $150 million. Additionally, non-GAAP earnings per shareEarnings per share (EPS) is a fundamental financial metric that provides valuable insights into a company's profitability. This widely used indicator helps investors and analysts g... More were $0.02, which fell short of expectations by $0.08. This earnings miss has contributed to investor concerns about the company’s financial health and future prospects.

Dividend Suspension and Cost-Cutting Measures

In response to its financial challenges, Intel announced the suspension of its Q4 dividend and a substantial reduction in its workforce by 15,000 employees. These measures are part of a broader $10 billion cost-reduction plan aimed at improving profitability and operational efficiency. While these steps are intended to stabilize the company’s finances, they have also heightened investor anxiety, leading to a sell-off in Intel’s stock.

The company aims to cut operating expenses to approximately $20 billion in 2024 and $17.5 billion in 2025, representing more than a 20% reduction from prior estimates. These cost-cutting measures, although challenging, demonstrate Intel’s commitment to maintaining profitability and improving efficiency.

Insights

1. Intel is advancing towards 2nm and 1.8nm processes, with significant progress in recent milestones.
2. The foundry business is a key strategic shift, aiming for $15 billion in revenue by decade’s end.
3. AI accelerator Gaudi 3 positions Intel against Nvidia in the AI chip market.
4. Near-term financial challenges include revenue decline and significant cost-cutting measures.

The Essence (80/20)

• Core Topics:
  • Technological Advancements: Introduction of 20A and 18A processes.
  • Foundry Expansion: Launching a foundry business to produce chips for external customers.
  • AI Market Participation: Development and launch of the Gaudi 3 AI accelerator.
  • Financial Challenges: Addressing revenue decline, cost-cutting measures, and dividend suspension.
• Detailed Descriptions:
  • Technological Advancements: Intel’s 20A and 18A processes signify a leap in chip manufacturing, positioning Intel for technological leadership.
  • Foundry Expansion: This strategic shift enables Intel to diversify its revenue streams and compete in the high-end chip market.
  • AI Market Participation: The Gaudi 3 AI accelerator offers competitive performance against Nvidia, targeting both inference and training applications.
  • Financial Challenges: Despite recent financial setbacks, Intel’s aggressive cost-reduction plan aims to stabilize and improve long-term profitability.

The Action Plan – What Intel Will Likely Do Next

1. Monitor Technological Milestones: Track the progress of the 20A and 18A processes to ensure timely launch and competitive edge.
2. Expand Foundry Business: Strengthen partnerships and customer base to secure the projected $15 billion revenue target.
3. Leverage AI Capabilities: Promote Gaudi 3 and upcoming AI processors to capture market share from Nvidia.
4. Implement Cost-Reduction Measures: Execute the $10 billion cost-reduction plan efficiently to stabilize financial health and restore investor confidence.

Blind Spots and Remedies

Over-Reliance on New Process Technology

• Blind Spot: Intel’s strategy heavily depends on the successful launch and adoption of the 20A and 18A processes. Delays or technical issues could significantly impact their competitive position.
• Remedy: Develop contingency plans, including enhancing existing process technologies and diversifying product offerings, to mitigate the risk of delays.

Geopolitical Risks

• Blind Spot: While Intel’s focus on U.S. and European production reduces dependency on Asia, geopolitical tensions or policy changes could still impact supply chains and operations.
• Remedy: Establish robust supply chain diversification strategies, including partnerships with suppliers in various regions, to minimize geopolitical risks.

Foundry Business Competition

• Blind Spot: Entering the foundry business puts Intel in direct competition with established players like TSMC, which could lead to pricing and capacity challenges.
• Remedy: Invest in unique value propositions, such as specialized process technologies or integrated design services, to differentiate Intel’s foundry offerings and attract customers.

Financial Stability Amid Cost-Cutting

• Blind Spot: Aggressive cost-cutting measures, including workforce reductions, might affect employee morale and productivity, potentially impacting long-term innovation and growth.
• Remedy: Implement clear communication and support strategies for affected employees, invest in automation and efficiency technologies, and maintain a focus on innovation to sustain morale and productivity.

INTC Technical Analysis (Daily)

The chart shows Intel Corp (INTC) with various technical indicators on a daily time frame.

The price trend is clearly downward. The stock price has fallen from above $40 to below $20 in recent months. The 50-day moving average (blue line) is currently around $30.97, and the 200-day moving average (red line) is at $38.80, indicating a bearish crossover that occurred a few weeks ago.

Volume analysis shows a significant increase in trading volume recently, which might indicate strong selling pressure.

The Relative Strength IndexIn the world of technical analysis, the Relative Strength Index (RSI) stands as a cornerstone tool for traders seeking insights into market momentum. Developed by J. Welles Wilder ... More (RSI) is at 15.39, which is in the oversold territory, suggesting a potential for a rebound or a pause in the downtrend.

The On-Balance VolumeThe On Balance Volume indicator (OBV) is a technical analysis tool used to measure the flow of money into and out of a security over a specified period of time. It is a cumulative ... More (OBV) indicator shows a continuous decline, indicating that selling volume is dominating.

The Stochastic RSIIn the realm of technical analysis, the Stochastic RSI (StochRSI) emerges as a powerful tool for traders seeking to navigate market dynamics with precision. Developed by Tushar S. ... More is at 0.008, also in the oversold territory, supporting the possibility of a short-term bounce.

The Chaikin OscillatorNamed after its creator Marc Chaikin, the Chaikin Oscillator stands as a formidable tool in the arsenal of technical analysts. This oscillator is designed to measure the accumulati... More is at -54,512,971, reflecting strong distribution and selling pressure.

The MACDThe MACD indicator is essentially a momentum indicator that shows the relationship between two different moving averages of price. The MACD is the difference between the 12-period ... More Oscillator shows the MACD line below the signal line and in negative territory (-4.05), indicating a strong bearish trend.

Time-Frame Signals:
3 months: Sell – The overall downtrend is strong with no immediate signs of reversal.
6 months: Hold – Potential for stabilization or minor recovery if oversold conditions lead to a technical rebound.
12 months: Hold – Long-term indicators suggest the stock is deeply oversold, and a potential base formation might occur. However, confirmation is needed before considering a buy.

INTC Technical Analysis (Weekly)

The chart shows Intel Corp (INTC) with various technical indicators on a weekly time frame.

The price trend is strongly downward. The stock has sharply declined from above $50 to around $19 in recent months. The Anchored Volume Weighted Average Price (VWAP) from August 2023 is at $36.88, indicating that the current price is significantly below the average trading price, reflecting bearish sentiment.

Volume analysis shows a substantial increase in trading volume, particularly in the most recent weeks, suggesting heavy selling pressure.

The On-Balance Volume (OBV) indicator has been declining, indicating that the selling volume outweighs the buying volume.

Time-Frame Signals:
1 year: Sell – The strong downward momentum and increased selling pressure suggest continued weakness.
2 years: Hold – Potential for the stock to stabilize or form a base, but further confirmation is needed.
3 years: Hold – The stock may find long-term support and begin to recover, but this is uncertain without additional positive indicators.

Past performance is not an indication of future results. This article should not be considered as investment advice. Always conduct your own research and consider consulting with a financial advisor before making any investment decisions. 🧡

Looking Ahead

Intel’s journey to reclaim its position as the world’s leading chipmaker is marked by significant milestones and strategic initiatives. With the introduction of advanced processes like 20A and 18A, expansion into the foundry business, and strong participation in the AI chip market, Intel is poised for a remarkable turnaround. While near-term challenges remain, the company’s strategic moves and commitment to innovation position it for long-term success. Under Gelsinger’s leadership, Intel is well on its way to reestablishing itself as the best chipmaker on the planet.

Intel’s Turnaround FAQs