Intel – No Price Too Low

$20 per share is a bad deal.

• The White House has had the last laugh in acquiring a stake in Intel at a lower price than SoftBank, but neither of these entities can do much to fix the existential problems that Intel faces and may, in fact, exacerbate them.  
• The US Federal Government has acquired a 10% in Intel for $20 per share, which must be annoying Mr Son at SoftBank, as just a couple of weeks ago, he put in $2bn at $23 per share.
• The US government’s stake is being paid for with already earmarked funds from the CHIPS Act, which had not been disbursed, meaning that the US taxpayer is actually getting more for its money than previously.
• However, I am far from convinced that the presence of the federal government in Intel is going to help it, and if it begins to influence the running of Intel, it may hinder any recovery.
• There is little doubt in my mind that Intel is in dire trouble as:
  • First, Strategic direction: which is of paramount importance when it comes to a turnaround, and of which Intel has none.
  • In my opinion, its best shot was to invest hard, catch up with TSMC and re-establish itself as the king of manufacturing.
  • The alternative was to split the company into two with the factories becoming a foundry and the rest becoming a fabless semiconductor designer.
  • Under the previous CEO, Pat Gelsinger, progress was being made on the investing strategy, but the financial impact on the company was greater than expected.
  • As a result, the board lost its nerve and Mr Gelsinger left the company to be replaced by Mr. Tan.
  • This meant that only the second strategy was now on the cards, but Mr Tan appears to have chosen neither, and now Intel sits directionless and defenceless while the circling sharks take ever larger bites out of it.
  • Second, galloping obsolescence, which is becoming more and more apparent with every passing quarter.
  • The Arm processor design was proven by Apple to be superior to the x86, and now competitors for Intel’s data centre and PC business (its core businesses) are popping up all over the place with credibly better products.
  • Qualcomm and Apple’s personal computer chip designs are demonstrably better than either Intel’s or AMD’s x86 designs, and I will not be surprised to see AMD switch to Arm at some point for this product category.
  • Furthermore, data centre CPUs that accompany GPUs are increasingly going to Arm, and there is an increasing number of Arm-powered options available for data centres that are not directly related to AI.
  • Intel’s defence has long been the software that runs on these servers, which is time-consuming and difficult to port to Arm, but the more the industry moves to Arm, the stronger the case becomes to fix the legacy.
  • This means that Intel’s moat in the data centre is evaporating and thanks to good x86 emulation from Qualcomm, Microsoft and Apple, it has virtually vanished in PCs.
  • Third, the sharks are feasting: while Intel sits there and appears to do nothing.
  • Intel has already lost the entirety of the Mac computing business, and Qualcomm is making steady inroads into Windows PCs.
  • Qualcomm will soon be followed by MediaTek and Nvidia, meaning that the competitive pressure on Intel will only increase from here.
  • The net result is that Intel is under assault on all fronts and appears to be just sitting there taking the hits and doing nothing.
• Hence, I am far from convinced that the US federal government got a good price for Intel and its presence will do nothing to help it.
• The only thing it ensures is that Intel’s fabs are never foreign-owned, which I think is something that it could probably have achieved without owning a stake in the company.
• Furthermore, the government is concerned with political issues and with it as a shareholder, Intel may be forced to adopt policies and practices that are political in design rather than commercial.
• These could hinder and slow a recovery strategy, making the difference between success and failure.
• Consequently, the presence of the federal government adds further risk to Intel’s share price, and I continue not to want to own it at any price.
• Instead, I own Qualcomm, which is one of the sharks and is benefiting as many of the other sharks that will compete with it are taking longer than expected to get their products market-ready.
• At 13x 2025 PER, the story is misunderstood, and the diversification away from mobile is priced at zero, making me want to buy more.