At Intel's (INTC 0.35%) recent investor day event, the company highlighted several pieces of its long-term strategy. An analyst downgraded the stock anyway.
In this video clip from "Semiconductor Revolution" on Motley Fool Live, recorded on March 3, Motley Fool contributors Billy Duberstein and Jose Najarro discuss the company's upcoming moves, what analysts had to say about it, and what they might be missing.
Billy Duberstein: They recently had an investor analyst day where they outline their long-term plans. This transformation is going to take heavy investment for the next three years pretty much. Intel's being downgraded. They guided for slight revenue growth in 2022. But look at the EPS. Their EPS is going to go from $5.47 down to $3.55 this year. Revenue is growing but their expenditures are going way up. That investment phase is going to last through 2024, where they're targeting mid- to high-single-digit growth but lower margins and basically, they're going to spend all of their free cash flow on their foundry business and catching up to TSM.
I don't know if anybody watched the State of the Union but Joe Biden spent a good amount of time talking about the new plant that Intel is going to develop in Ohio hopefully and likely with government incentives. It's going to be just a ton of spending. 2025 and beyond is where it gets interesting. They're going to tie it 10-12% revenue growth. They're going to get back to margin expansion and free cash flow margins around 20%. That's still a little lower, I think, than they used to generate when they were just making PC chips. But they will be a better growth profile because they'll will be a player in the foundry market.
They're also reconfiguring the business into six new segments. Client, which is PCs and desktops; data center; network, and edge, which is actually different from data center, which is interesting. Accelerated computing and graphics. That'll be their FPGAs and accelerators from Alterra and the new graphics chip that they're coming out with. Intel Foundry Services and then Mobileye. They're going to plan to use a smart capital approach, which means they're going to try to get help from customer prepayments, which I'm guessing they're going to give discounts for prepayments. It de-risks the tremendous capital expenditure they're going to make.
One other interesting thing is that they're also teaming up with Brookfield Asset Management, which I think is a Fool favorite in the infrastructure and clean energy space. They are an asset manager. They're going to try to get financing from them in conjunction with renewable energy on-site. Then they're going to use Mobileye proceeds and then also some outside foundry help from TSMC. I posted a link.
One quote that stood out to me was this, "Intel remains on track to reclaim transistor performance per watt leadership by 2025." They're hoping to catch up and surpass TSM by 2025. Despite the plan, I think Intel was just downgraded today by an analyst. Basically said, this plan looks good, we completely agree with Pat Gelsinger this is what they should do but this could be dead money for two or three years. It's basically an all-in approach where they're betting the company on this big foundry project and then Mobileye information at the bottom. But this is just a real quick cursory glance. There's a lot of in-depth stuff on the Analyst Day site, which I think everybody should read who is interested in the space. It will give you a better understanding of the whole industry. They talk about where Moore's Law stands today and the big computing trends of the next decade. Keep in mind it's coming from a biased source in Intel but it's still probably a lot of good stuff in there. I would go to their Investor Relations page and look at the Investor Day. I think it's from Feb. 14 or 15 or something like that.
Jose Najarro: It's pretty recent, I think just two weeks ago. One of my favorite things there was just the overall growth that they're expected to see in datacenter chips. Obviously it's cool to see, hey, we are going to innovate. Any company can say that, we're going to be the best chips, but at least they give us a roadmap. Normally Intel is one that has missed those timelines before. Hopefully that changes with the new CEO.
