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Intel — Company Overview

Intel is an independent company that designs, develops, manufactures and markets a broad range of semiconductors. The company is the nation’s largest full-line semiconductor manufacturer, with factories located throughout the United States.

At the core of Intel’s (NYSE: INTC) business are platform products such as CPUs, chipsets, systems-on-chip and multi-chip packages. The company also offers a broad portfolio of non-platform and related products, including accelerators, motherboards, connectivity and storage solutions.

INTC Ticker: Development Strategy

Intel’s 2021 roadmap was its most detailed development plan to date. The company announced the development of contract manufacturing and the construction of several new megafactories. The total investment over the next decade will be around $200 billion, half of which will be spent on building two factories in the US and several in Europe over the next 4-5 years.

In total, INTC’s investments in the EU will reach $95 billion over the next ten years. The company also plans to expand in Malaysia with a new $7 billion facility. If you have been trading shares of companies like WMT price and others, it is time to take a closer look at this tech giant.

Financial Results and Balance Sheet

Over the past five years, Intel’s revenue, operating income (EBIT), and adjusted net income per share (EPS) have averaged a compound annual growth rate of approximately 7%, 11%, and 21%, respectively. In late October, the company reported third quarter and nine month results that exceeded investor expectations. This marks the ninth quarter since the beginning of 2019 that Intel has beaten analyst and broader market earnings expectations. However, the stock is still trading at 2018-2019 levels due to investor skepticism about the company’s future.

For the first nine months of 2021, GAAP U.S. revenue and adjusted net income grew just 1% year over year. However, revenue growth accelerated significantly in the third quarter, with revenue up nearly 5% YoY to $19.2 billion. Adjusted net income increased 60% to $6.82 billion and non-GAAP adjusted net income increased 68% to $1.71 per share.

Funding Capital Expenditures

Investors typically view high capital expenditures negatively, fearing increased debt and reduced free cash flow. In Intel’s case, however, we can expect the opposite reaction. Semiconductor companies are valued by investors not only on cash flow yield, but also on technological innovation and market share.

The primary sources of cash flow for Intel’s capital expenditures are:

  • The sale of the NAND memory business, which will add approximately $9 billion to the company’s cash reserves.
  • The pending separation of the Mobileye business with a proposed valuation of $50 billion, which will unlock shareholder value and provide additional liquidity for the company’s future plans.
  • The CHIPS Act & FABS Act, which will increase cash reserves through budget allocations and investment and research and development (R&D) tax credits.

In addition, Intel generates significant free cash flow, averaging $13 billion over ten years. The company has ample cash reserves and a Moody’s credit rating of A1 with a stable outlook. This gives the company the ability to raise debt in the capital markets at low cost.

Intel Stock Price: Dividends and Share Buybacks

Because of the company’s strong financial health and high profitability, Intel can pursue its growth strategy without sacrificing shareholder returns. Currently, Intel stock pays a small dividend of $0.35 per share per quarter, with a forward yield of 2.5%. The company has increased its dividend by about 6% per year over the past five years and has a seven-year track record of uninterrupted growth.

Prior to March 2021, Intel regularly repurchased its own shares from the market, increasing shareholder returns by an additional 5-6.5% per year. However, with the approval of the new growth strategy, CEO Patrick Gelsinger has stated that Intel will place less emphasis on share repurchases and instead increase investments in research and development.

In summary, we can expect a significant reduction or even elimination of the share buyback program as a necessary step for the company’s development.

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