Every once in a while opportunities like intel come along where a previous tech market leader loses strength and the market overreacts and drives the price down way too much.
Mainstream media latches on, calls the end of the company, tech YouTubers and the HN comment section follow suit. Price further falls to ridiculous lows and becomes a screaming value buy.
It doesn’t happen often, but when it does it’s a great opportunity. There are of course exceptions (Kodak comes to mind) but a company like Intel when we are going through perhaps the largest ever compute and processing demand surge was just silly.
The Foundry lost over $2B this quarter. If it keeps losing that much, they're on track to lose $8B this year. When they first segregated the Foundry P&L, $8B/year loss was what they announced. And that caused the price to tank from $50 down to almost $25.
They said their plan was to break even in 2027 (2028 if we're being generous). They've made almost no progress on that front.
Their revenue is about the same as then.
Their products are as what was expected back then (as in, they're good, but they had planned them to be about this good by this point in time). None of the recent news (Terrafab, etc) is significant. Their AI strategy is nonexistent (which is fine by me, but it was cited as one of the reasons the last CEO failed).
The only difference is they replaced a transparent CEO with one who doesn't like giving details. The honest CEO resulted in a loss in stock price. The current CEO, who is merely continuing the prior CEO's plan, doesn't reveal anything of value, and the stock skyrockets.
I think $40-60 is an appropriate price for Intel. $60 if it is doing well (which so far it's not). Going to $80 aftermarket should require them to compete and be expected to beat AMD on HW.
Examples: Boeing during "covid". Tesla pretty much anytime. Intel....
Yes, it's true that some(specifically 18A) of the successes Intel have had since the CEO switch were essentially part of the plan under Gelsinger. But to say that nothing has changed seems simply uninformed, and that's me being charitable.
LBT has done lots of things, including securing significant investment, cutting costs, made some good deals in the DC segment, and most importantly, started making real progress(still early days though) in finding actual foundry customers willing to commit to 14A. Intel under Gelsinger was approaching its foundry business in a "build it and they will come" sort of way, hemhorrhaging huge piles of cash and merely crossing their fingers that customers would show up at this point. One of the first things LBT did as CEO was make future development of 14A contingent on finding customers for it, which is precisely ehat he's been trying to do.
This quarterly report was the first during his tenure that showed some real financial progress: the quarter was profitable when analysts expected breakeven, sequential foundry revenue grew, 18A yields are up, guidance looked good. This, to you, is practically nothing? It seems to me that going from bleeding cash at an accelerating rate, to turning a profit, is about very much something.
And again, I agree that hype is a bit overzealous right now, but arguably the fact that there's market optimism about INTC again is a huge victory on LBT's part. Because how exactly is IFS supposed to attract customers willing to make multiyear commitments to their services if the company is universally seen as a sinking ship? To state the obvious, market sentiment can make or break a public company, no matter how disconnected that sentiment is from the fundamentals.
And to say Intel has no AI strategy seems disingenuous. LBT has addressed AI strategy quite explicitly in public, and you can look it up if you want.
I'm cautiously bullish on INTC in the long term. I do expect a correction at some point, just like I would for any stock that goes up more than 20% in one day, but to me that's just market swings. The daily machinations of the stock market are like a tale told by an idiot, full of sound and fury, signifying nothing.
The only significant cost cutting is via layoffs, and that wasn't particularly different from Pat's strategy - LBT just added more layoffs.
I have no reason to believe those deals would not have been made under Pat. They were made because the state of 14A/18A was better. And they were better not because of anything LBT did, but just the progression that was ongoing under Pat.
The government investment is identical to the amount they had promised Intel under the CHIPS Act, except that now instead of a grant it's equity (a worse deal for Intel). There is an ongoing shareholder lawsuit that alleges the deal was made to stop Trump's online bullying, and wasn't made with the interests of the shareholders in mind.
The other big difference is, frankly, Trump. I don't think some of the investments (e.g. Nvidia) would have occurred had Trump not been in the office.
> Intel under Gelsinger was approaching its foundry business in a "build it and they will come" sort of way, hemhorrhaging huge piles of cash and merely crossing their fingers that customers would show up at this point.
That is naive. Are you seriously suggesting Intel wasn't actively courting potential customers? I know from inside knowledge in multiple companies that wasn't the case. And you don't need to take my word for it - potential deals were reported multiple times in the press.
As for hemorrhaging huge piles of cash, have you compared the financials with Pat vs now? As I mentioned before, the amount they're losing to Foundry hasn't changed - and that's precisely the complaint they had about Pat. In fact, the (valid) complaint was that all the funds were being routed to the Foundry, and thus Intel's products suffered (internally I know several teams complained they had to cut competitive features because they didn't have funding).
> 18A yields are up, guidance looked good.
They are no higher than was projected under Pat. As I said, Foundry-wise, everything is falling under the same trajectory as he had outlined - except the financials. They are worse than projected.
As for the actual yields, I can assure you from sources in multiple potential customers that based on the data they've seen, it's still "Not good enough to commit to a deal." Improved? Yes. Good enough for a top tier company to rely on them? No.
Yes, the revenue was a bit higher than projected, but that's because they projected low. And the reasons the projections were low is because, unlike Pat, LBT is not transparent. He gives little details, and so people make guesses. It's a classic example of transparency being punished.
On an absolute level, the revenues are still low, compared to what Intel was achieving just a few years ago. Back then, this amount of revenue would have been viewed as a really bad quarter.
> LBT has addressed AI strategy quite explicitly in public, and you can look it up if you want.
Yes, I did. He came to Intel with a vision to position Intel strongly in the AI space. Then less than 6 months later, he announced he has more or less given up on catching up with Nvidia. What changed? He wanted to acquire an AI company, but the Board couldn't agree on it and while they were bickering, another company acquired them. And then LBT declared his surrender.
I have strong connections within Intel - both Foundry and Products. I speak to them regularly. I always get 3 responses:
- Things are as bad - no clear direction on what's going on (the layoffs never stopped, and they're still scrambling to keep their jobs)
- Things are as OK - they're as they have always been - no changes.
- Things are great! When pressed on what has changed, the answer is "Oh, nothing. But we're happy the stock is up!"
I've yet to hear from a single personal contact there that the changes that have been made has improved anything.
Pat had a rotation with all Intel Fellows. Each Intel Fellow met with Pat on a regular cadence. The one Fellow I'm routinely in touch with says he hasn't met with LBT, and nor has most Fellows he knows. No indication that LBT even cares what they have to say. The lack of transparency within Intel is quite notable. He gives no details during the quarterly company meetings, and has instructed the business leaders not to be transparent. The phrase "Oh, LBT is laser focused on results!" is heard often from them.
I'm not saying Intel is a sinking ship (well, Foundry might be). $20 was clearly undervalued. But $80 is clearly overvalued, as we all agree. And Pat was the sacrificial lamb.