Intel‘s stock has plunged over 50% from its 2018 peak, destroying years of shareholder value. At under $30 per share compared to over $68 in early 2020, it‘s clear Intel has faced severe setbacks. But what‘s really behind this massive decline?
In short, Intel is being squeezed from all sides:
- Surging competition is stealing market share in key segments like PCs and servers
- Manufacturing and technology delays have hobbled its competitiveness
- Macroeconomic headwinds are crimping demand for PCs and enterprise tech
- The PC market itself is undergoing secular declines
Together, these forces have crushed Intel‘s revenues, profits and growth prospects. For long-term investors, Intel‘s low valuation indicates its towering status in semiconductors has diminished dramatically.
This article will analyze both the symptoms and root causes behind Intel‘s 50% stock collapse. With detailed data, expert perspectives, and insightful commentary, I‘ll explain why this former tech monopolist risks becoming an also-ran.
Financial Decline: Intel‘s Sales and Profits Are Shrinking Fast
Intel‘s deteriorating competitive position has rapidly eroded its financial performance. The shockingly steep declines in 2022 revenue and earnings underscore the severity of Intel‘s woes:
- Revenue fell 20% from $79 billion in 2021 to $63 billion in 2022, with Q4 2022 revenue plunging 32% year-over-year. This was Intel‘s steepest quarterly drop since the dot-com crash in 2001.
- Gross margin collapsed from 55.4% in 2021 to 43.8% in 2022 as competition forced price cuts.
- Net income swung to a $0.7 billion loss compared to a $19.9 billion profit in 2021 – Intel‘s first annual loss since 2015.
| Key Financial Metric | 2021 | 2022 | Decline |
|---|---|---|---|
| Revenue | $79B | $63B | -20% |
| Gross Margin | 55.4% | 43.8% | -11.6% |
| Net Income | $19.9B | -$0.7B | -103% |
This financial deterioration happened extraordinarily fast. As recently as Q3 2021, Intel revenue grew 5% annually and its net margin exceeded 30%.
Just 5 quarters later, Intel is burning cash as sales plunge and margins compress. The speed of this reversal is shocking for a company of Intel‘s scale.
Surging Competition Eroding Intel‘s Market Share
Intel‘s virtual monopoly in microprocessors has vanished. Hungry rivals now attack from all sides:
- AMD has surpassed Intel in desktop PC CPUs and made massive server share gains.
- Apple dumped Intel to use its own silicon like M1 and M2 in Macs.
- Nvidia dominates data center GPUs as AI/machine learning booms.
- New players like AWS and Ampere are capturing cloud workloads.
The result? Intel‘s market share and ASPs are eroding quickly:
- Intel‘s share in laptop CPUs plunged from 80% in 2017 to 60% in 2022 based on Mercury Research data.
- Its share in server CPUs dropped from about 98% to just 83% since 2017 per PassMark.
- Intel remains #1 in total market share, but its global CPU share fell from 79% in 2020 to 62% in 2022 according to Statista.
This downward trend will likely continue as competitors like AMD execute better. Once lost, regaining share in commoditized hardware markets becomes extremely difficult.
Manufacturing Delays – Intel‘s Key Weakness Versus AMD
What enabled rivals like AMD to grow share at Intel‘s expense? A major driver is manufacturing technology.
Intel‘s repeated delays in transitioning to advanced transistor nodes like 7nm and 5nm gave competitors an opening:
| Company | Current Leading-Edge Process | Transistor Density |
|---|---|---|
| Intel | Intel 7 (10nm) | 237 MTr/mm2 |
| TSMC (AMD partner) | TSMC 5nm | 291 MTr/mm2 |
With a process advantage, AMD can create chips that are smaller, faster, and more power efficient than Intel‘s. AMD successfully outsourced manufacturing to TSMC to leapfrog Intel.
Intel won‘t reach the 5nm node until 2025, giving AMD free rein to gain share with better performing chips. Intel admitted this delay was a key reason for losing Apple‘s Mac business to Apple‘s own M-series chips.
Fixing Intel‘s manufacturing, either internally or through outside foundries, is essential to competing in semiconductors. So far, management has failed to solve this existential problem.
The Decline of PCs – Intel‘s Cash Cow Under Pressure
Intel still generates nearly 50% of its revenue from the PC market. But the PC boom fueled by work-from-home demand has vanished as the economy re-opens:
- PC shipments declined 16% in Q4 2022 and 12.8% for the full year per Gartner.
- Consumers and enterprises aren‘t replacing PCs as quickly amid economic uncertainty.
- The rise of smartphones and tablets continues eroding the user base for traditional PCs long-term.
This don‘t bode well for Intel as PCs represent its largest profit pool. Even if Intel stemmed share losses, shrinking PC volume will pressure growth and earnings.
Management Changes Have Yet to Bear Fruit
Facing myriad challenges in 2022, Intel ousted CEO Bob Swan after just 2 years and appointed industry veteran Pat Gelsinger.
Gelsinger outlined bold strategic moves like IDM 2.0 (leveraging outside foundries), launching a foundry business to make chips for others, and major manufacturing expansions.
But so far, tangible progress has been limited. Manufacturing roadmaps show Intel trailing rivals through 2025. Its foundry business has yet to announce marquee customers.
Turning around a $200 billion company with massive bureaucracy will take time. But Intel needs wins sooner to renew investor confidence.
Weak Economy and Demand is Hindering Intel‘s Turnaround
Recovering lost ground is already a tall task for Intel. Doing so amid deteriorating economic conditions makes the challenge even harder.
Rising interest rates, stubborn inflation, geopolitical conflict, and supply chain turmoil have caused enterprises to tighten spending and delayed infrastructure upgrades:
- In Q4 2022, hyperscaler capex declined high-single digits for Intel – crimping crucial data center revenue.
- 70% of consumers say macroeconomic factors will moderate their tech spending.
This demand destruction will likely continue well into 2023. Intel will be working uphill until the macro climate improves.
Valuation – What is Intel Stock Worth Today?
Despite Intel‘s steep 50% price decline, valuation metrics indicate the stock may still have room to fall:
- Intel‘s forward P/E ratio of just 8.4x seems cheap compared to its 5-year average of 12.3x. But declining earnings could justify an even lower multiple.
- Its dividend yield of 5.4% is well above market rates today. But this income comes at the cost of an unsafe payout ratio near 200% that may require more cuts.
- On a P/S ratio of 1.7x and P/B ratio of 1.2x, Intel trades at multi-year lows. But sales and asset erosion may continue.
Here are key stats on Intel‘s valuation:
| Valuation Metric | Intel Current | 5-year Average |
|---|---|---|
| Forward P/E | 8.4x | 12.3x |
| Dividend Yield | 5.4% | 2.8% |
| Price/Sales (P/S) | 1.7x | 3.0x |
| Price/Book (P/B) | 1.2x | 2.7x |
Traditional value investors may see upside in buying Intel so cheaply. But slowing growth in semiconductors may warrant permanently compressing multiples.
What Could Change Sentiment on Intel Stock?
Given Intel‘s deep-rooted challenges, what catalysts could shift sentiment positively and send the stock higher?
The #1 trigger would be clear evidence that Intel can again advance its manufacturing leadership. If new CEO Pat Gelsinger quickly executes on the delayed 5nm and 3nm nodes for 2024-2025, it would demonstrate tangible technical progress.
Other potential upside drivers:
- Major customer wins that reverse market share losses, especially in data center.
- Launch of truly competitive next-gen CPUs and GPUs that rival AMD‘s and Nvidia‘s upcoming offerings.
- Resumption of Apple business would signify product leadership, albeit unlikely.
- Signs of PC market stabilization as demandnormalizes from pandemic highs and lows.
- Divesting non-core assets like Mobileye automotive to focus R&D on critical markets.
- Further insider buying by Gelsinger or directors to signal confidence.
Absent these catalysts, Intel likely faces too stiff a competitive headwind lifting its stock in 2024. But long-term investors should track Intel‘s strategic execution for signs it could again become a semiconductor leader.
Conclusion: A Tech Giant In Crisis
To summarize, Intel faces a perfect storm of declining PC demand, manufacturing delays, competitive inroads from Hungry rivals, and challenging economics. The confluence of these forces has sharply reversed Intel‘s financial fortunes.
Despite its reasonable valuation, Intel shows hallmarks of a declining business: eroding market position, loss of innovation edge, lack of clear direction. Unless management quickly produces tangible wins under its new strategy, Intel‘s slide down the semiconductor ranks will continue.
For contrarian investors, Intel may offer turnaround potential if execution improves. But remaining holders should brace for more near-term volatility, competitive pressure, and possible dividend cuts.
The next 2-3 years will determine whether Intel can reclaim its former dominance. This remains a high-risk, low-confidence bet today in my view compared to other chipmakers executing better. Tread carefully.
Disclaimer: This article represents my research, analysis, and opinions only. It is not professional financial advice.
