Intel: Promising Turnaround And Future Leadership
Contributor since 2021 / 2692 Followers
Summary:
- Intel has been able to maintain its market share despite competition from AMD, thanks to timely product releases and a stronger focus on customer value.
- The company’s server market share erosion has slowed, and the release of Intel 4 and subsequent nodes could change the competitive landscape.
- INTC’s turnaround plans are progressing well, with the successful use of EUV technology and the upcoming release of Meteor Lake.
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Introduction
In my previous article, I continued to rate Intel (NASDAQ:INTC) as a buy. I continued to stress the potential of the company’s turnaround plan along with the numerous governments willing to aid Intel in the company’s turnaround efforts for their interests. As such, considering the company’s continued progress in its bold and ambitious turnaround plan along with government support, I believe the future potential of the company to be monumental. I continue to stand by this thesis and continue to rate Intel as a buy. In this article, I am updating the company’s turnaround progress and its implications as Intel is nearing the launch of Intel 4 and the geopolitical situations are becoming more favorable for Intel. Therefore, I believe Intel is a buy, and investors should consider buying the company before Intel releases Intel 4.
Market Share and Its Story
Before talking about the turnaround progress, I would like to address Intel’s market share progress and its implications.
It is true that Intel has been allowing AMD (AMD) to catch up to its dominance years leading up to the start of the company’s turnaround plan during the pandemic. During this time, many investors have speculated that AMD will continue to dominate Intel and gain significant market share. However, over the past years, even as Intel has not yet reached its first steps in its turnaround plan, the company has not allowed AMD to overtake them.
During the Citi (C) 2023 Global Technology Conference, Intel’s CFO Mr. David Zinsner provided insight into the market share dynamic and Intel’s future expectations. In regards to client-side market share, Mr. Zinsner was asked how Intel has gained back market share even as the company raised the prices, and Mr. Zinsner answered by saying the company has brought “products to market in a timely fashion with good performance.” As obvious as the statement may sound, I thought it was significant, especially when taking into account the company’s vision and Mr. Zinsner’s additional detail in his answer. I believe it’s s reasonable to say that Intel, before Pat Gelsinger, did not have a strong vision for innovation and bringing the most value to consumers in a timely fashion creating room for AMD to grow. However, over the past two years since the change in the management team, the company has shown that the new Intel is able to bring value and new products in a timely manner. As Mr. Zinsner has said, the company is “more focused in terms of providing value to customers [and] getting a stronger engagement with the customer base,” which has helped the company in “rectifying things. ” Today, as Intel attempts to prove that their aggressive vision of achieving 5 nodes in 4 years is possible, the progress the company has shown by gaining back some market share, in my opinion, was meaningful.
Further, when asked about the exaggeration of the death of the server business at Intel and how Intel has stopped the market share erosion in the server market, Mr. Zinsner said it was due to the advancements the company made in Sapphire Rapids as the product distinguished itself in the AI workloads. However, he did acknowledge that Sapphire Rapids was not capable enough to address all of the customers’ needs before going on to say that this will change with the Sierra Forest and Granite Rapids on Intel 3 in 2024.
On the server side, the company said that they currently command about 75% of the market, and I think investors should focus on the fact that the market share erosion on the server side has largely slowed even before the release of the semiconductor fabricated using EUV, Intel 3. As such, similar to the market share trends on the client side, the successful launch of Intel 4 and subsequently Intel 3 could change the competitive landscape for Intel. Intel, after time and time, is showing that the company is on track to achieve 5 nodes in 4 years.
Turnaround Progress
Intel’s turnaround plans were ambitious, and there were numerous doubts as investors questioned if the company’s vision was realistic. Today, looking at the continuous updates, it is likely that Intel will be able to achieve its goals.
First, on September 29th, 2023, Intel “announced the start of high-volume manufacturing using Intel 4 technology,” which was made possible by an extreme ultraviolet or EUV technology. The use of EUV machines became the norm in the industry before it was widely used in Intel, so it could be said that Intel moving in the right direction. Also, the start of high-volume manufacturing for Intel 4 is in line with the management’s claim of releasing Meteor Lake in 2023H2 putting an additional show of confidence to the investors.
Further, beyond the company starting high-volume production of Intel 4 that will be released before the end of the year, the management team gave further insights on visions beyond Intel 4 during the Goldman Sachs (GS) Communacopia and Technology Conference. After confirming that Meteor Lake is in volume production for the 2023 release, the company’s management team said Granite Rapids, Intel 3, “is taping out and sampling now” as the company is working on “20A and 18A designs.” Overall, with a continued vote of confidence from the management team to confirm that the company is on track while providing updates every few months on future progress, I believe it is reasonable to argue that Intel’s execution and vision are on track and the company has monumental potential.
Geopolitical Implications
In this article, I mentioned that geopolitical tensions are creating a situation where numerous Western governments want or even need Intel to become more competitive. My reasoning for the argument was that semiconductor, which is vital to national security and economic development in the modern world, fabrication is heavily reliant on two Asian countries, Taiwan and South Korea. The overwhelming majority of the chips are produced in these regions creating a potential problem for Western nations. In times of a high-stakes conflict with China or North Korea, a vital supply of semiconductors could be interrupted. Further, as US Commerce Secretary Gina Raimondo said, “Manufacturing – not software or algorithms – powered [the] engine of innovation.” Thus, for nations that are reliant on TSMC (TSM) and Samsung (OTCPK:SSNLF), it is a risk to future development for an engine that powers innovation to be dominated by foreign companies.
The above passage was a brief summary of my argument in my past articles. I continue to stand by this thesis as TSMC and Samsung are making immense investments to diversify their footprint beyond their respective countries. For example, TSMC is expanding overseas, Japan and the United States, while Samsung has vowed to invest in Texas. These moves, in my opinion, shows the intent of the Western Nations to grow semiconductor fabrication within their own border. However, for Samsung and TSMC, because their respective government does not want these companies to completely diversify oversees, the permanent solution to the current problem for the United States, the European Union, and more is to grow a company that does not have political and economical ties so far away from them, which happens to be Intel. Therefore, as the efforts by Intel’s fabrication competitor, Samsung and TSMC, intensifies to diversify overseas, I believe it shows the importance of Intel and its success for not just the company but for numerous nations creating a favorable environment for the company.
Risks
My bullish thesis largely revolves around Intel’s continual progress. The company’s strong execution and progress that has been showcased was one of the major reasons why I believed Intel could continue to showcase strong results going forward. However, while past results are a good indicator for a future result, it does not always guarantee the future outcomes. As such, in the upcoming earnings report on October 26th, investors should closely monitor any potential major changes to Intel’s progress or the company’s vision as any major changes such as a significant delay could potentially put my bullish thesis at risk.
Summary
I do not view Intel 4 and its future nodes as magic that will rectify all the problems for the company, but I would like to point out the progress that the company is making toward achieving an aggressive goal to get back to the leadership or competitive position in both semiconductor fabless and fabrication industry. The company laid out an ambitious plan back in 2021, and to date, the execution shown by Intel has been on point. The company has continued to show its ability to achieve its current ambitious vision. Therefore, as geopolitical conditions create a favorable environment for Intel’s success, I believe Intel is a buy.
Analyst’s Disclosure: I/we have a beneficial long position in the shares of INTC, TSM either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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