Hi E_K_S,
Exactly!
That is the reason one allocates some long term capital to INTC's turnaround story.
Much like the demand destruction of the pandemic made oil E&P companies such a great long term value.
INTC is one of the few companies that has invested billions annually into R&D.
When/IF INTC gets back on the leadership role of advanced technologies and the tic toc of smaller nodes, they'll enjoy their past historic margings of 60% plus of minus 2 percent.
How will they do that?:
1) They have secured the first new generation of lithography from ASML which incorporates Extreme Ultraviolet light. INTC lost their edge by avoiding EUV and working on fin/fet and other thin line capabilities with different metals to achieve speed w/o EUV. So that's one thing they can do.
When/IF that is accomplished, they'll then have pricing power. TSMC was margins in the 20%. Margins that AMD, QUALCOM, and all fabless chip designers must pay for the actual production of their chips.
INTC on the other hand has the scale to utilize their fabs without becoming a fab (although they intend to do that as well), This opens up INTC to have discounting and pricing power versus all non fab chipmakers - A CLEAR AND POWERFUL ADVANTAGE!
In between Intel has a solid dividend $1.46 and its dividend coverage is .34.
Now its not hard to have sympathy for INTC and its key PC makers . The pandemic has forced some mega trends. Some demand destruction during the pandemic ie energy. It also boosted some indeustries which pulled forward demand. Ask peloton!
In INTC's case, work from home as the entire world was in various forms of being shut DID pull in future demand. They now are suffering from the lack of demand and a stuffed supply channel. INTC has been undershipping chip vs build rate by 10%. To get a feel on the size of the PC bust cycle, Q4's sales rate declined 30%.
So much like CVX and XOM all had pundits declaring the dividend should be slashed, management instead started to work on cost controls and efficiency gains.
When the natural demand reverts to the normal size and growth rates (does any one think the future will not utilize more computers?) we'll see volumes stabilize, while margins grow and benefit from cost savings programs implemented.
While all the pendants declare INTC dead and over, The patient smart money (that can read a balance sheet), is buying on the dip. I'm enjoying INTC's dividend @ $1.46 and this last Friday I added another 98 cents by selling 10 January 19, 2023 $20.00 puts. now. BUT the cashflow from my position is generating (I have 3000 shares under water), but they are generating 1.78 per share with the put sale. Do I worry about getting assigned INTC shares at $19.025 net cost. NOPE, I'm hoping I get them assigned.
My cash flow from the position is 1.46 dividend and .32 cents from a year out put sale (.32ish) = $1.78/ 19.025 = 9.36% based on cost of the assigned shares.
Now Gelsinger says this is a long term process - which is straight forward, and I like that. He says it will take to 2025 before full benefits are reached.
I hope that is correct. I'd like to buy 3,000 shares a year for three years. My bet is by that time, I won't want to pay the higher price and I'll be very happy to hold those shares on a double in capital gains and enjoy the now increasing dividend paid.
Long term turnaround stories from a company that has huge depreciated assets and many R&D learnings is an opportunity of the market mispricing things. I hope. Not to mention the Capex plans will hurt Free cash flow for a year or two. Keep in mind that the US government just allocated 52 BILLION to help. It is safe to say INTC will be the largest beneficiary from the CHIP act.
That's why I also like IBM and XRX for put selling on dips.
There are always just a few of these kinds of turnaround stories out there.
Just watch Seeking Alpha and watch who is getting jumped on by all the bears who pile on with monthly negative stories. XOM,KMI,CVX,T,IBM. Past market lepers, all at prices too high to pay now.
Of course then there are the Eastman Kodak stories, which are now ridiculously being paralleled to INTC. The main difference is INTC is promoting the digitation of the world. Not fighting the trend of photo film going the way of the dinosaur.
Patient, prudent longer term investing, betting on a turnaround with a world class leader in technology, struggling to reclaim the lead, sadly at the same time it's core product is in a sales trough. Perfect timing!
Gonna be tough and I'm gonna "buy the dip" via put sales each and every tough quarter they announce.
My dividend revenue stream is solidly aimed at accumulating INTC on the cheap, via put selling when fear inflates the premium.
That's my plan, I can't prove it, but I'm sticking to it.
If it works half as good as what the pandemic did to energy stocks, I'll be a long term happy investor in INTC.
Pandemics have consequences both during and post there occurrence. Use them to accumulate great stocks as they dip.
Bob |
