Intel Investor Meeting Keynote

[hist78]

Additional details and documents related to Intel 2022 Investor Meeting:

Intel Investor Meeting 2022

CEO Pat Gelsinger and the rest of the Intel leadership team will discuss our latest business strategy and address top investor questions.

www.intel.com

 

[Daniel Nenni]

Thanks. I watched it live but I wanted to go through it again. I'm sure we will have some posts on it next week.

The good news is Intel gross margins are expected to be in the 51-53% range. Some had thought it would dip below 50%. The bad news is that gross margins will likely stay at 51-53% due to all of the money Pat is spending. I also think AMD has something to do with this as well. Competition is really heating up, which is for the greater good, absolutely.

For the foundry business Tower Semiconductor gross margin is in the low 20%. The questions is can Intel raise that or will IFS be operating at the same level? In 2021 other foundry gross margins: UMC is 26-36%, SMIC is 30-35%, GF 20%, TSMC's is 51-53%.

 

[hist78]

Thanks. I watched it live but I wanted to go through it again. I'm sure we will have some posts on it next week.

The good news is Intel gross margins are expected to be in the 51-53% range. Some had thought it would dip below 50%. The bad news is that gross margins will likely stay at 51-53% due to all of the money Pat is spending. I also think AMD has something to do with this as well. Competition is really heating up, which is for the greater good, absolutely.

For the foundry business Tower Semiconductor gross margin is in the low 20%. The questions is can Intel raise that or will IFS be operating at the same level? In 2021 other foundry gross margins: UMC is 26-36%, SMIC is 30-35%, GF 20%, TSMC's is 51-53%.

One thing I don't understand is Intel released Alder Lake processors last November plus new discrete graphic adapters and new Xeon processors that will be released to market in 2022, why Intel's 2022 revenue growth is so limited?

According to the forecast Intel announced during the Investor Meeting yesterday, Intel's 2022 revenue will be $76 billion. That's a tiny 1.74% growth from $74.7 billion 2021 revenue. There are many semiconductor companies expect double digits revenue growth in 2022, but Intel's forecast is in a very different tone.

Why those new Intel products can't move Intel's 2022 revenue?

Is it because Intel's yield or market demand crashed? Or Intel got a wrong product mix or something else?

Corrections:
Sorry, my mistake. I should have used Intel 2021 GAAP revenue of $79 billion as the base to compare Intel forecasted 2022 $76 billion revenue. This is a negative 3.8% revenue drop for 2022.

 

[TX Fly Fisher]

They're probably capacity limited which limits growth opportunities until new fabs come online and they get more products into TSMC.

 

[hist78]

They're probably capacity limited which limits growth opportunities until new fabs come online and they get more products into TSMC.

Make sense except Intel keeps saying their unique strength is to have their own fabs. They don't need to wait in line for outside foundries to allocate capacity to them, Intel said.

How can they work hard for several years to develop a multi billion revenue product and then find out there is no enough Intel fab capacity to produce it? It's possible, but probably can't happen at Intel.

 

[TX Fly Fisher]

I'm fairly certain they've stated that they're running at full capacity. Not surprising given the unprecedented demand and subsequent chip shortage.

 

[hist78]

I'm fairly certain they've stated that they're running at full capacity. Not surprising given the unprecedented demand and subsequent chip shortage.

But if that's the case, Intel's 2022 revenue should have a significant increase, instead of the tiny 1.74% growth.

Remember most other major semiconductor companies, foundries, fabless, and IDMs, are expecting another good year for 2022. Like Intel they are all facing capacity and supply chain constraints too. Why other semiconductor companies can increase revenue significantly but not Intel? Many of them are raising prices 10%, 20%, or more to take advantage of this up cycle. If Intel can raise average 5% across their product lines, their 2022 revenue will increase more than the 1.74% they have predicted.

Corrections:
Sorry, my mistake. I should have used Intel 2021 GAAP revenue of $79 billion as the base to compare Intel forecasted 2022 $76 billion revenue. This is a negative 3.8% revenue drop for 2022.

 

[Daniel Nenni]

I'm fairly certain they've stated that they're running at full capacity. Not surprising given the unprecedented demand and subsequent chip shortage.

I highly doubt Intel is at full capacity. The financials just don't work. Pat Gelsinger sure has energized the Intel rank and file. I have never seen such excitement coming from inside Intel. The next 4 years will be exciting, absolutely.

 

[TX Fly Fisher]

I suspect AMD having competitive alternative solutions has required Intel to lower ASPs offsetting any manufacturing improvements they've made. When your factories are full, there's not much you can do other than work to improve yields. Owning fabs is a delicate balance between having too much capacity (which adds unnecessary cost) and not enough (which limits upside potential). Unforecasted incremental demand can catch a company like Intel in a bind. Couple that with AMD and here they are.

 

[TX Fly Fisher]

I highly doubt Intel is at full capacity. The financials just don't work. Pat Gelsinger sure has energized the Intel rank and file. I have never seen such excitement coming from inside Intel. The next 4 years will be exciting, absolutely.

I'm drawing from memory, but I'm pretty sure Pat said they were at capacity during a recent earnings call.

 

[hist78]

Sorry, my mistake. I should have used Intel 2021 GAAP revenue of $79 billion as the base to compare Intel forecasted 2022 $76 billion revenue. This is a disastrous negative 3.8% revenue drop for 2022.

How can this happen when Intel plan to release new products to the market in 2022?

 

[hist78]

I think the negative revenue growth and negative cash flow are making investors very nervous about Intel's situation. Why Intel's forecast is so much different from the current hot semiconductor market?​

Intel’s ‘absurdly bullish’ long-term forecast sends stock to lowest point since 2020​

Intel's 'absurdly bullish' long-term forecast sends stock to lowest point since 2020

Intel Corp. disappointed analysts with its short- and medium-term goals in an investor day Thursday, and analysts collectively shook their head at an...

www.marketwatch.com

 

[TX Fly Fisher]

Wall Street doesn't like the high capex required for Intel to expand manufacturing capacity because it's a short to mid-term headwind. Long-term it could pay off, but investors who get in now will need to be patient while it plays out. I suspect those who get in at these prices could see 20%+ annualized returns in five years, but that requires Intel to execute on their strategy. If they perform to plan, they could very well outperform the current semiconductor darlings over that period. We'll see.

 

[blueone]

I highly doubt Intel is at full capacity. The financials just don't work. Pat Gelsinger sure has energized the Intel rank and file. I have never seen such excitement coming from inside Intel. The next 4 years will be exciting, absolutely.

I have no doubt that there is more excitement in Intel manufacturing and technology development than there has been in years. The corporate strategy is to vastly expand manufacturing investment. Fabs are the emotional and vision focus of the company again, as in the glory days. But from employees I talk to, Intel's toxic work environment is alive and well. I'm amazed at the number of senior Intel people, including some well-known superstars, leaving for other companies. This is not a sign of a company that is "a great place to work", as Intel used to promote.

I can't speak to Intel's fab utilization, but I'd be surprised if they aren't capacity limited in the Intel 7 process. 14nm too. I also suspect their pricing and gross margins for datacenter CPUs to the major cloud companies are very low. I think they'd be lower if AMD could deliver more CPUs. And I suspect Intel's pricing capability won't increase much, since Amazon, Microsoft, Google, and Facebook are known to be working on their own CPU and networking projects. Amazon's success with Nitro is certainly foretelling a future where the merchant cloud datacenter chip market will be growing more slowly for everyone. Intel will probably have no choice but to buy business with highly competitive pricing.

For desktops and laptops, I wonder how bright the future can be given Apple's success with the M1. Given the overwhelmingly positive reactions I've seen from many Apple M1 product customers, I'm surprised that we haven't seen Intel or AMD announce a competitor to the M1 for the PC laptop market, and especially the Chromebook market. (Mostly AMD.) I have also wondered if Dell, HP, or Lenovo will take the leap through an acquisition, though I doubt it. Client CPUs are more difficult to design than server CPUs.

If I look at Apple's M1 results and Amazon's Nitro results, it is difficult to be bullish about the merchant chip market in general, and Intel's decision to focus on fabrication looks smarter. Of course, any chip design problem is vastly easier than succeeding in fabs.

 

[hist78]

Wall Street doesn't like the high capex required for Intel to expand manufacturing capacity because it's a short to mid-term headwind. Long-term it could pay off, but investors who get in now will need to be patient while it plays out. I suspect those who get in at these prices could see 20%+ annualized returns in five years, but that requires Intel to execute on their strategy. If they perform to plan, they could very well outperform the current semiconductor darlings over that period. We'll see.

Intel is definitely investing heavily and working hard to build a better position. But that should only impact Intel's expense and profit margin, not their revenue.

I still can't grasp the true cause for Intel's 2022 negative revenue growth forecast. It makes no sense for a dominant player to shrink its 2022 revenue under such hot market condition.

 

[bearsfan2690]

Intel is definitely investing heavily and working hard to build a better position. But that should only impact Intel's expense and profit margin, not their revenue.

I still can't grasp the true cause for Intel's 2022 negative revenue growth forecast. It makes no sense for a dominant player to shrink its 2022 revenue under such hot market condition.

Well part of the GAAP revenue decline is the divestiture of the NAND business to SK Hynix - that was a multi-billion $ business that is no longer in the financials. Your earlier comment about non-GAAP sales up about 1.7% is closer to the actual picture.

A few other moving parts: the roll-off of Apple modems - Intel was still supplying a decent chunk of iPhone modems last year - that is going closer to zero this year.

So within client computing - perhaps some share loss to AMD, lost business at Apple with M1 processor in Mac, and then modem business was lumped in here is also going down plus the PC market likely decelerating as a whole following 2 straight strong COVID-19 induced demand years. This segment will be down in 2022.

Within Datacenter - Intel is losing share at cloud customers to AMD - they're also being forced to cut prices - similarly, we expect this business to be up modestly at best, with enterprise and edge/networking offsetting weakness in the cloud. They need Sapphire Rapids bad here and that has been delayed to 2H of this year. But then AMD will have their own latest EPYC server CPU out on TSMC's 5-nm process...So combination of price war/and share loss hurting DCG.


The other segments are likely growing quite nicely in-line with the broader market as you mentioned is doing very well - things like IoT, networking, edge, Mobileye, should all be up nicely. They also disclosed they'll ship 4 million GPUs this year - but seems like ASPs won't be great. So a bit of graphics and early IFS sales helping offset the weakness above.

All said and done - from a non-GAAP perspective (they were $74 billion and change in sales in 2021 excluding NAND) - $76 billion in sales for 2022 sounds about right, and honestly is a little higher than I would have expected (I would have thought flat to down modestly was more likely with all the headwinds they face).

 

[Daniel Nenni]

I have no doubt that there is more excitement in Intel manufacturing and technology development than there has been in years. The corporate strategy is to vastly expand manufacturing investment. Fabs are the emotional and vision focus of the company again, as in the glory days. But from employees I talk to, Intel's toxic work environment is alive and well. I'm amazed at the number of senior Intel people, including some well-known superstars, leaving for other companies. This is not a sign of a company that is "a great place to work", as Intel used to promote.

I can't speak to Intel's fab utilization, but I'd be surprised if they aren't capacity limited in the Intel 7 process. 14nm too. I also suspect their pricing and gross margins for datacenter CPUs to the major cloud companies are very low. I think they'd be lower if AMD could deliver more CPUs. And I suspect Intel's pricing capability won't increase much, since Amazon, Microsoft, Google, and Facebook are known to be working on their own CPU and networking projects. Amazon's success with Nitro is certainly foretelling a future where the merchant cloud datacenter chip market will be growing more slowly for everyone. Intel will probably have no choice but to buy business with highly competitive pricing.

For desktops and laptops, I wonder how bright the future can be given Apple's success with the M1. Given the overwhelmingly positive reactions I've seen from many Apple M1 product customers, I'm surprised that we haven't seen Intel or AMD announce a competitor to the M1 for the PC laptop market, and especially the Chromebook market. (Mostly AMD.) I have also wondered if Dell, HP, or Lenovo will take the leap through an acquisition, though I doubt it. Client CPUs are more difficult to design than server CPUs.

If I look at Apple's M1 results and Amazon's Nitro results, it is difficult to be bullish about the merchant chip market in general, and Intel's decision to focus on fabrication looks smarter. Of course, any chip design problem is vastly easier than succeeding in fabs.

I'm still digging but I have not been able to confirm that Intel is at full utilization on either 14 or 7. I think a constraint on Intel 7(10) is yield. It is still ramping I am told. The supply chain calls I have been on this month indicate lower lead times and better pricing for Intel and AMD CPUs. GPUs are still constrained but CPUs are loosening up. 2023 could be the year of better chip pricing, absolutely.

 

[blueone]

I'm still digging but I have not been able to confirm that Intel is at full utilization on either 14 or 7. I think a constraint on Intel 7(10) is yield. It is still ramping I am told. The supply chain calls I have been on this month indicate lower lead times and better pricing for Intel and AMD CPUs. GPUs are still constrained but CPUs are loosening up. 2023 could be the year of better chip pricing, absolutely.

Intel is very tight-lipped about Intel 7 yields, but I think it would be a good guess that they're lower than the tuned 14nm processes that Intel fiddled with for years. The most information I got out of an employee for Intel 7 was that "Yields are good". Yeah, right. What is good? 85%? 90+%? At Intel's volumes every percent in yield improvement has a huge bottom line impact. I remember when the numbers were openly discussed, but that was a long time ago.

In several decades of working for big companies, I have found that when a big company really wants to succeed in a market, from the BoD on down to the engineers, and does what it takes to succeed no matter what it takes, for the most part they generally do mostly succeed. Most big companies I've been in or close to never achieve that sense of purpose. It does seem that Intel really is willing to do whatever it takes to compete with TSMC in fab process (we'll see about being a premier foundry), as measured by investments, acquisitions, and risks taken. With the possible exception of Tesla, can we think of a company more willing to bet it all on winning than Intel currently is?

 

[hist78]

"With the possible exception of Tesla, can we think of a company more willing to bet it all on winning than Intel currently is?"

Is it a good thing or bad thing?

For most companies, including Tesla, they are betting with their own shareholder's and venture capital's money. But in Intel's case, they are betting with shareholder's, venture capital's, and taxpayers' money.

Taxpayers might be willing to help Intel as a one time deal. But Pat Gelsinger already said publicly he needs CHIPS Act II.

 

[blueone]

"With the possible exception of Tesla, can we think of a company more willing to bet it all on winning than Intel currently is?"

Is it a good thing or bad thing?

Shareholders can sell if they don't like strategy, like I should have at $68 after Gelsinger was appointed. (What a dummy I was!) While I'm not a fan of Gelsinger in general, I do like his bet-it-all strategy on fabrication. Otherwise, Intel is likely to become yet another has-been former industry leader, a shadow of its former self, like IBM has become.

So, yeah, I think it's a good thing. I admit, I like the no-guts-no-glory mindset, especially in big companies. It's not for everyone.