Is This Intel Corporation's Biggest Risk?

Intel warns investors about 26 big risks, but none hits harder than the threat of fickle markets.

Jun 16, 2014 at 10:02AM

Every business faces certain risks, and management must disclose their biggest worries in annual and quarterly SEC filings. Today, I'll take a look at the biggest real danger I see in the latest risk recap from semiconductor giant Intel (NASDAQ:INTC). As an Intel shareholder myself, this is a topic of burning interest.

In the latest available Section 1A risk factors listing, Intel walks us through 26 different warnings. Some are mundane, industry wide, or even broader, like the stern look at climate change, or the need to attract and retain key personnel. Investors everywhere already worry about these ultra-generic issues, and I'm looking for something more specific to Intel this time.

On that end, Intel stares down a plethora of company-specific challenges. The company worries about monetizing its intellectual property portfolio, hackers stealing or damaging vital data, and misjudging production levels along the complex process of manufacturing microprocessors.

Even so, one warning stands out like a sore thumb...

Intel D

A new chip factory under construction in Hillsboro, Oregon. Source: Intel.

No. 1 with a few bullets!
At the very top of Intel's list of risk factors, you'll find this beast: "Changes in product demand may harm our financial results and are hard to predict."

Yes, indeed. And that's just the title of this risk factor.

Diving deeper into the enclosed paragraph of management's discussion, you'll find lots of thorns ready to poke a hole in Intel's business.

  • Macroeconomic issues can hurt Intel's sales.

  • So can soft consumer confidence and shrinking corporate IT budgets.

  • Rivals can launch price wars or present game-changing innovations.

  • System builders could prefer another chip designer's chip designs.

  • Natural disasters, sudden market shifts, or simple human error can put unexpected bottlenecks in Intel's supply chain.

All of these issues can conspire to turn one of Intel's biggest business advantages into a costly problem. I'm talking about the company's network of in-house manufacturing facilities.

Intel helped invent the semiconductor as we know it, and continues to drive the state of the art forward. A generous portion of the company's $2.8 billion quarterly research budget goes toward improved manufacturing technologies. Intel puts these theoretical advances into action, too. Intel spent $11 billion on capital improvements last year, and almost all of these costs go toward building factories.

For a deeper look into the risks and benefits of running semiconductor factories, check out slides 14 through 23 of this handy slideshow.

Intel Ocotillo Oc
Intel's dormant Fab 42 in Ocotillo, Arizona. Source: Intel.

How dangerous is this particular risk?
You can imagine the pain Intel feels when its market predictions go astray. For example, Intel added a new facility to its Arizona campus in 2011 and pumped $5 billion into equipping this state-of-the-art manufacturing line. But the new factory was supposed to churn out desktop and laptop chips, and the market for these products kind of died in 2012.

Now Intel has a fully built, but only partially equipped, factory in Arizona, collecting dust until its services are needed again. Five billion spent for no immediate return. This is the downside of long-term planning and leading the market.

Intel just announced that parts of the dying PC market might not be terminally ill after all. The company hasn't promised to restart Fab 42 in Arizona, but that's a possibility if these trends stay intact. So the Arizona adventure is an instructive example of how Intel's biggest, baddest risk factor actually plays out from time to time. The risks are real.

This week's PC sales reversal is also a useful companion piece, because it shows how some short-term problems don't last forever. Some analysts speculated that Intel might want to sell Fab 42 rather than sitting out this production-less period. It looks like Intel made the right decision, after all.

Leaked: A huge small-cap opportunity
This device -- kept secret until now -- could mark a new revolution in smart tech (with big implications for health care). It's a gigantic market opportunity -- ABI Research predicts 485 million of its type will be sold per year. Intel will certainly play a big role in this burgeoning market, but there's bigger money to be made in smaller and more-focused competitors. To learn about the small-cap stock making this device possible -- the stock that could mint millionaires left and right when its full market potential is realized -- click here.

Anders Bylund owns shares of Intel. The Motley Fool recommends Apple and Intel. The Motley Fool owns shares of Apple and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers