Intel Is Throwing The Kitchen Sink - Buy It

Investment Thesis - Intel has been struggling in the competitive chip market for over a decade, with intensified challenges in the last five years [2] - The appointment of Pat Gelsinger as CEO in 2021 aimed to reposition Intel for product and process leadership, but recent earnings reports indicate the company is falling behind its 2026 goals [2][5] - Investors have reacted negatively, leading to one of the worst annual stock performances for Intel since 1975 [4] Financial Performance - Intel projected mid-high single-digit revenue growth by 2023 and aimed for over $110 billion in revenue by 2026, with gross margins expected to reach ~52% by 2024 and 56% by 2026 [5] - However, revenue growth has declined, and margins have contracted, resulting in a financial burden from foundry investments exceeding $30 billion [5][6] - Management has suspended dividends, cut the workforce by 15%, and aims to save ~$10 billion in costs [6] Revenue and Cost Management - Intel is projecting total revenues of $13 billion for Q3, with analyst estimates around $13.7 billion, indicating a revenue contraction of ~3% to $52-53 billion [6] - The $10 billion in cost savings is expected to improve the company's margin profile, which is currently at its worst in a decade [6][9] - Management is actively reviewing its business portfolio and considering divesting parts of its foundry business to unlock value [6][10] Market Valuation - Intel is currently priced at 0.7x its book value, suggesting that the market has priced in significant bearish sentiment [7] - The company has approximately $206 billion in assets, including ~$29.3 billion in cash and equivalents, which could help reduce its ~$53 billion debt load [9] - Despite challenges, Intel remains strategically important for the U.S., and current market mispricing may overlook this aspect [9] Management Actions - Intel's management is focused on restoring investor confidence and has acknowledged the need for operational efficiency [6][11] - The company is exploring options to separate its capital-intensive foundry business from its design business to enhance shareholder value [6][10] - Management's proactive measures and cost reduction strategies are expected to lead to a reversal in stock price over the coming weeks [11]