Summary

• Intel Corporation first got incorporated under the name NM Electronics Inc. on 18 July, 1968. But soon afterwards, on 6 August, 1968, the company changed its name into current name. The company first went public through its Initial Public Offering (IPO) on October 13, 1971 at a price of $23.50.
• Company’s float as on 14 October, 2022 is 4.11 billion and market cap (intraday) on the same date is 102.81 billion.
• The company reported $15.3 billion revenue in Q2’22, which was $19.5 billion during Q2’21. The result is an outcome of CCG and DCAI revenue decreased by 25% and 16%, respectively. Gross profit margin of the company was 36.5% during this quarter against 57.1% a year earlier.
• During the year ended December 25, 2021, Intel has reported $79.02 billion in revenue as compared to $77.867 billion a year earlier.
• During the year 2021, the company invested $15.2 billion in R&D, made capital investments of $18.7 billion, and generated $30.0 billion in cash from operations and $11.3 billion of free cash flow.
• Operating income of the company is reported $19.5 billion in 2021 as compared to $23.7 billion in 2020, a decrease of 18%. Net income of the company is $19.86 billion, which was $20.89 billion a year earlier. Diluted earnings per share (EPS) is $4.86 in 2021, which was $4.94 in 2020.
• In March, 2021, the CEO Pat Gelsinger introduced “IDM 2.0”, a major evolution of that strategy. IDM 2.0 is a combination of Intel’s Internal Factory Network, Third-party Capacity and Net Intel Foundry Services.

Brief Company Overview

Intel Corporation (NASDAQ:INTC) is a semiconductor computer microchips producer, headquartered in Santa Clara, California, USA. Intel is an industry leader, facing rivalry from only a few companies like AMD (Advanced Micro Devices), Qualcomm Inc., and Apple Inc. Product segments of the company are – Client Computing Group (CCG), Data Center Group (DCG), Internet of Things Group (IOTG), Mobileye, Non-Volatile Memory Solutions Group (NSG) and Programmable Solutions Group (PSG). Some examples of brands are – Mobileye, intel Agilex, Thunderbolt, intel TOFiNO, OpenVINO, Intel Core i7, and intel STRATiX.

Intel Corporation first got incorporated under the name NM Electronics Inc. on 18 July, 1968. But soon afterwards, on 6 August, 1968, the company changed its name into current name. An Intel Corporation was incorporated in 1 March, 1989 in Delaware. The California and Delaware corporations merged on 5 May, 1989 and Intel Corporation (Delaware) is the current continuing Intel. The company first went public through its Initial Public Offering (IPO) on October 13, 1971 at a price of $23.50. Total number of shares outstanding as on July 2, 2022 is 4,100 million.

Customers of Intel include original equipment manufacturers (OEMs), original design manufacturers (ODMs), and cloud service providers. Among top customers who account for more than 10% revenues of 2021, Dell Inc. represents 21%, Lenovo Group Limited 12%, and HP Inc. 10%. The company sell products through distributors – located at various locations in proximity to key customers. The company has seasonal trend in its revenue. Net revenue in 2^nd half of the year is typically higher than the other half. Revenue accelerates in the third quarter and peaks in the fourth quarter.

Stock Market Insights

The company first went public through its Initial Public Offering (IPO) on October 13, 1971 at a price of $23.50. Company’s float as on 14 October, 2022 is 4.11 billion and market cap (intraday) on the same date is 102.81 billion. The company did a 2:1 split on July 30, 2000. Of the total shares outstanding, 63.89% are held by institutions, 0.06% by the insiders, and general public hold the rest about 34%. Trailing P/E of the company is 5.37 times.¹

Financial Analysis

Q2 Results

Beginning from the Q1’22, the company decides to report their financials under following business segments – Client Computing Group (CCG), Datacenter and AI Group (DCAI), Network and Edge Group (NEX), Accelerated Computing Systems and Graphics Group (AXG), Intel Foundry Services (IFS), and Mobileye (MBLY).

Due to the changed environment under inflationary pressure worldwide, Ukraine war, supply chain disruption in China and other parts, extended shutdown of ports in China, and shot-up fuel price, Intel has experienced 22% negative growth in quarterly revenue year-on-year. The company reported $15.3 billion revenue in Q2’22, which was $19.5 billion during Q2’21. The result is an outcome of CCG and DCAI revenue decreased by 25% and 16%, respectively. Gross profit margin of the company was 36.5% during this quarter against 57.1% a year earlier. According to the reports of the company, lower gross margin resulted from lower revenue, higher inventory reserves, higher period charges from ramp of Intel 4, higher unit cost, Optane inventory impairment from winding down Intel Optane, and patent settlement charges. Q2’22 results show a negative EPS of $0.11, down by 109% from the same quarter previous year. According to company reports, lower EPS resulted from lower gross margin, higher operating expenses from additional investment in R&D and higher losses on equity investments, partially offset by a tax benefit on the operating loss (however, it could be mentioned that EPS for 6-months period ended July 2, 2022 is $1.87). Operating cash flow is down to $6.7 billion from $14.1 billion due to lower income and unfavorable working capital changes.²

Segment report: CCG

This segment sales PC-related products divided into three categories – notebook, desktop, and other. Comparison between Q2’22 and Q2’21 shows that Notebook revenue was $4.8 billion during Q2’22, down $2.0 billion from Q2 2021. Notebook unit sales decreased 38% driven by lower demand in the consumer and education market segments and ASPs (Average Selling Price) of this segment increased 13% due to an increased mix of commercial products and lower mix of education and consumer products; Desktop revenue was $2.3 billion, down $503 million from Q2 2021, unit sales decreased 19% primarily driven by lower demand for education products, with a slight increase in ASPs of 1%; other revenue was $625 million, down $102 million primarily driven by the continued ramp down from the exit of 5G smartphone modem business and lower demand for wireless and connectivity products. Lower demand for notebook and desktop was driven by customers tempering purchases to reduce existing inventories. From Q2’21, operating income decreased by 73% from $4,029 to $1,085, and operating margin was 14%.

Segment report: DCAI

Products of this segment include CPUs, FPGAs, and AI accelerators, and Intel persistent memory together with a portfolio of software and solutions. Revenue from this segment was $4.6 billion, down $898 million from Q2 2021, driven by a decrease in Server revenue. Server volume decreased 12% as certain customers tempered purchases to reduce existing inventories, and adjust to a lower demand environment. Server ASPs decreased 10% due to a higher mix of hyperscale customer-related revenue within a competitive environment. The decrease in Server revenue was partially offset by an increase in other DCAI revenue in Q2 2022 due to growth in our FPGA business. From Q2’21, operating income decreased by 90% from $2,090 to $214, and operating margin was 5%.

Segment report: NEX

The purpose of this segment is to lift the world's networks and edge systems from fixed function hardware into open software running on programmable hardware. Revenue from this segment was $2.3 billion, up $228 million from Q2 2021, driven by increased demand for Ethernet and 5G products and higher ASPs, partially offset by lower demand for Network Xeon.

Segment report: AXG

Products in this segment include CPUs for high performance computing, GPUs for gaming and content creation, HPC and AI workload on supercomputers. Revenue from this segment was $186 million, up $9 million from Q2 2021. Operating loss in this section is $507 million, compared to an operating loss of $168 million in Q2 2021. The loss is due to increased inventory reserves taken and investments in the company’s product roadmap.

Segment report: IFS

Revenue from this segment was $122 million, down $142 million from Q2 2021, primarily driven by lower sales of MBMW tools. The company experienced an operating loss of $155 million, a $207 million unfavorable margin change from Q2 2021, primarily due to lower gross margin from lower tool sales and increased spending to drive strategic growth.

Segment report: MBLY

Mobileye provides driving assistance and self-driving solutions. Revenue was $460 million, up $133 million from Q2 2021 primarily driven by higher demand for EyeQ products. Operating income was $190 million, up $57 million from Q2 2021, primarily due to higher revenue.

Analysis of the past financial year

Income statement

During the year ended December 25, 2021, Intel has reported $79.02 billion in revenue as compared to $77.867 billion a year earlier. According to company reports CCG revenue went up by 1% and DCG revenue down by 1%, both amid the effects of industrywide supply constraints. Demand for notebook increased and demand for desktop recovered, partially offset by lower notebook ASPs due to strength in the consumer and education market segments. DCG was down on lower ASPs driven by product mix and a competitive environment, partially offset by higher platform volume from recovery in the enterprise and government market segment. IOTG and Mobileye both achieved strong results on higher demand amid recovery from the economic impacts of COVID-19. During the year 2021, the company invested $15.2 billion in R&D, made capital investments of $18.7 billion, and generated $30.0 billion in cash from operations and $11.3 billion of free cash flow.

Gross margin of the company is reported $43,815 million, up from $43,612 million. The company has made $1,010 higher gross margin from platform revenue, $680 from adjacent businesses primarily due to divestiture from NAND business and consequential absence of depreciation. The company experienced some segmental losses of $1,325 and $515 from ramp up of Intel 4 and ramp down of 14nm business, respectively.

Operating expense of the company was reported $21.7 billion, a 10% increase from 2020. Amongst the increase, $1.6 billion is in the R&D for investments in DCG, CCG, and Mobileye, and $363 million is in marketing, general and administrative expenses due to increase in corporate spending, and incentive-based cash compensation. The company also had to bear litigation charges of $2,291 million in 2021, which was only $67 million the previous year. The additional expenditure is attributable to VLSI Technology LLC’s litigation against the company filed October, 2017 for alleged claim of infringement of eight patents acquired from NXP Semiconductors N.V.³

Operating income of the company is reported $19.5 billion in 2021 as compared to $23.7 billion in 2020, a decrease of 18%. Diluted earnings per share (EPS) is $4.86 in 2021, which was $4.94 in 2020. Although operating income of the company has decreased significantly, EPS suffered less shedding due to bumped up equity investment gains, lower effective tax rate and lower number of shares outstanding. Weighted average shares of common stock outstanding is 4,059 million in 2021 and 4,199 million 2020. The company reported gains on equity investments $2,729 million, which was $1,904 million a year earlier. The increase is due to observable price adjustments to non-marketable equity securities. Thus, the company reported income before tax of $21,703, compared to $25,978. However, net income of the company is $19,868 million, which was $20,899 million. The year-on-year gap in net income is low when compared to between that of income before tax because effective tax rate of the company has been lower than 2020. The tax rate is primarily driven by one-time tax benefits due to the restructuring of certain non-US subsidiaries as well as a higher proportion of income from the company’s non-US jurisdictions.

Balance sheet

Total current assets of the company is reported at $57,718 million, up from $47,249 million the previous year. The upward movement is a result of increase in trading assets; inventories and assets held for sale also increase during this year, and cash position has decreased slightly.

Property, plant and equipment of the company is reported to be $63,245 million, which was $56,584 million a year earlier. Total assets, current and long-term, of the company in 2021 is $168,406 million and in 2020 was $153,091 million.

Total current liabilities of the company in 2021 stands at $27,462 million, where it was $24,754 million a year earlier. Short-term debt of the company has increased from $2,504 million to $4,591 million during the year. Long-term debt liability of the company is $33,510 million in 2021, which was $33,897 million a year earlier – leaving it almost unchanged.

The company has $0.001 par value 10,000 million shares authorized, 4,070 million shares issued and outstanding as of the year-end of 2021. Common stock equity and capital in excess of par value reported in 2021 is $28,006 million, which was $25,556 million a year earlier. Retained earnings of the company during 2021 is $68,265 million, which was $56,233 million the previous year.

Segment reports

In 2021, the company has reported the segments as such – Client Computing Group (CCG), Data Center Group (DCG), Internet of Things Group (IOTG), Mobileye, Non-Volatile Memory Solutions Group (NSG) and Programmable Solutions Group (PSG).

CCG segment reported net revenue of $40,511 million in 2021, compared to $40,057 million in 2020. Operating income from this group is $14,672 million in 2021, compared to $15,129 million in 2020.

DCG segment reported net revenue of $22,703 million in 2021, compared to $23,056 million in 2020. Operating income from this group is $6,997 million in 2021, compared to $10,571 million in 2020.

IOTG segment reported net revenue of $3,998 million in 2021, compared to $3,007 million in 2020. Operating income from this group is $1,045 million in 2021, compared to $497 million in 2020.

Mobileye segment reported net revenue of $1,386 million in 2021, compared to $967 million in 2020. Operating income from this group is $460 million in 2021, compared to $241 million in 2020.

NSG segment reported net revenue of $4,306 million in 2021, compared to $5,358 million in 2020. Operating income from this group is $1,369 million in 2021, compared to $361 million in 2020.

PSG segment reported net revenue of $1,934 million in 2021, compared to $1,853 million in 2020. Operating income from this group is $297 million in 2021, compared to $260 million in 2020.

Another statistic to mention is that in the company’s $79,024 million revenue, platform revenue is $63,737 million in 2021 and adjacent revenue $15,387 million. Adjacent revenue represents all other non-platform products such as model, ethernet, and silicon photonics, as well as Mobileye, NSG, and PSG products.

Top four destination of the company’s products are China ($21 billion of $79 billion revenue in 2021), Singapore ($14 billion of $79 billion revenue in 2021), United States ($14 billion of $79 billion revenue in 2021), and Taiwan ($13 billion of $79 billion revenue in 2021). From all the other regions, the company gets $16 billion of $79 billion revenue in 2021.

Key ratios

Company Overview

Rober Noyce and Gordon Moore were among the founders of Fairchild Semiconductors in 1957. Fairchild was a thriving business. However, Noyce and Moore found that the parent company was not reinvesting enough in research and development. In 1968, this duo resigned from Fairchild with the thought in mind that they might start something that has not been offered yet. So, they started a company named Intel Corporation in 1968. The company started its operation on August 1, 1968 with about a dozen engineers working from a conference room in the old Union Carbide building on Middlefield Road in Mountain View, California. By the end of three years of operation, the company had already contributed several of the most important inventions of the twentieth century, begun turning a profit, and outgrown the facility that Moore had considered too large.

Currently (Dated: October, 2022), Omar Ishrak is the Bangladeshi-American business executive currently serving as the Chairman of the Board of Intel. The company is helmed by Patrick Gelsinger as Chief Executive Officer of the company. David Zinsner serves as Chief Financial Officer. As of 2022, the company employs more than 121,000 employees worldwide.⁴ The company has number of subsidiaries worldwide.⁵

Equity Investments

McAfee Corp.

Intel owns 41% ownership of McAfee Corp. as of December 25, 2021. Intel reports this investment as equity method investment. The company received a special dividend of $1.1 billion as McAfee’s Enterprise Business was sold to Symphony Technology Group. Apart from this, Intel also sold a part of investment in McAfee for $228 million, thus, recognizing a total of $1.3 billion in revenue. In 2020, the recognized revenue was $126 million, and it was $632 million in 2019.

Beijing Unisoc Technology Ltd.

Intel recognizes its investment in Beijing Unisoc as a non-marketable equity security. In the first quarter of 2021, Intel recognized $471 million in observable price adjustments in its investment in Unisoc and as of December 25, 2021, the net book value of the investment was $1.1 billion ($658 million as of December 26, 2020).

Acquisitions and Divestitures

The company has completed four and six acquisitions in 2021 and 2020, respectively. All of the acquisitions are recognized as goodwill and identifiable intangible assets. However, the company has made some major acquisitions in the preceding years as well.

Acquisition: Altera

Altera was the largest acquisition of Intel in terms of cost as until 2022. The acquisition is made for $16.75 billion in 2015. Altera manufactured field-programmable gate arrays that were most easily described as configurable smart chips.

Acquisition: Mobileye

Intel has acquired Mobileye for $15.3 billion in 2017. Mobileye was involved with self-driving car technology. Under the terms of the agreement, Cyclops Holdings, LLC, a subsidiary of Intel commenced a tender offer to acquire all of the issued and outstanding ordinary shares of Mobileye for $63.54 per share in cash, representing a fully-diluted equity value of approximately $15.3 billion and an enterprise value of $14.7 billion. The tender offer (including the subsequent offering period) expired on August 21, 2017, at which time Intel had acquired approximately 97.3% of the outstanding ordinary shares of Mobileye.⁶

Acquisition: Moovit

Intel has acquired Moovit – a mobility as a service (MaaS) company, for a consideration of $915 million in 2020. Moovit is known for its urban mobility application that offers travelers around the world the best multimodal trip planning by combining public transportation, bicycle and scooter services, ride-hailing, and car-sharing. This deal brings Intel’s Mobileye closer to achieving its plan to become a complete mobility provider, including robotaxi services, which is forecast to be an estimated $160 billion opportunity by 2030.⁷ The goodwill and operating results of Moovit are included in Mobileye operating segment.

Divesture: NAND Memory Business

On October 2020, Intel signed an agreement with SK hynix Inc. to divest its NAND memory business for $9.0 billion in cash. The transaction is to be settled in two closings – first of which is closed on December 29, 2021 for $7 billion in cash, and the second is expected to be settled no earlier than March 2025. The company expect to recognize a pre-tax gain of $1.0 billion approximately and tax expenditure of $450 million approx.

Divesture: Home Gateway Platform Division

On July 31, 2020, Intel completed the divestiture of this CCG division for a proceed of $150 million. The divestiture includes transfer of certain employees, equipment, and an ongoing supply agreement for the future units.

Divesture: Smartphone Modem Business

Divesture of this segment was completed on December 2, 2019 for a consideration of $267 million. The deal included transfer of smartphone modem business, certain employees, IP equipment, and leases. The company recognized a pre-tax gain of $690 million on the divesture. Net assets sold were $267 million.

Competition and Strategy

Intel’s business is increasingly facing competition from companies such as AMD, Qualcomm Inc., and Apple Inc. AMD designs applications processors based on ARM architecture, and Apple recently launched its M1 Max and M1 Pro. The company expects that competition to intensify in the coming years.

Intel partners with OEMs to identify innovation vectors and develop ecosystems like Windows/x86. The company launched 12^th Gen Intel Core desktop processors based on hybrid architecture that combines two new core microarchitectures instead of one and can scale across PC segments and out to the edge. This processor family is meant to deliver superior performance to the mentioned segments. The company expects to deliver more than 60 processors and 500 desktop and mobile designs from partners across major multinational corporations and leading manufacturers.

The thrive of Intel for delivering premium PC experiences with Intel Evo and Intel vPro platforms is unique to it. On the Intel Evo platform, more than 100 advanced laptop designs have been built. Intel vPro is designed for enterprise needs and delivers increased productivity improvements, connectivity, security features, and remote manageability.

IDM 2.0 Strategy

IDM 2.0 is a combination of Intel’s Internal Factory Network, Third-party Capacity and Net Intel Foundry Services.

Since Intel’s founding in 1968, it has been an integrated device manufacturer, or IDM. That’s a company that both designs and builds its own semiconductor chips. In March, 2021, the CEO Pat Gelsinger introduced “IDM 2.0”, a major evolution of that strategy. Intel’s new IDM model includes significant manufacturing expansions, plans for Intel to become a major provider of foundry capacity in the U.S. and Europe to serve customers globally, and expansion of Intel’s use of external foundries for some of its products.⁸

As a part of this strategy, Intel announced manufacturing expansion plans beginning with ~$20 billion investment to build two new fabs in Arizona. The company announced plans for new research collaboration with IBM.⁹

Recent Development

• In 2021, Intel issued a total of $5.0 billion aggregate principal amount of senior notes. Net proceeds from the offerings are being used for general corporate purposes, which may include refinancing outstanding debt, funding for working capital, and capital expenditures. During 2021, the company repaid $500 million 1.70% senior notes that matured in May 2021 and $2.0 billion 3.30% senior notes that matured in October 2021.¹⁰
• In September 2022, Intel has announced its 13^th Gen Core processor for desktop computers.¹¹
• The company is producing its chips with 100 billion transistors this year and targets to incorporate a trillion by 2030 to keep Moore’s Law alive which says number of transistors each year double in a chip, later revised to two years.¹²
• Reportedly, Intel is planning to cut 12,000 jobs, to be announced with Q3 results of 2022 by the end of October.¹³
• The company declared $0.365 quarterly dividend ($1.46 per share on an annual basis) on 15 September, 2022.¹⁴
• Intel Corp.’s two primary research organizations, Intel Labs and Components Research, announced on Oct 05, 2022 that they’re making big progress as they work toward large-scale production of quantum computing processors.¹⁵

1. ^ https://finance.yahoo.com/quote/INTC/key-statistics?p=INTC
2. ^ https://www.intc.com/filings-reports/all-sec-filings/content/0000050863-22-000030/0000050863-22-000030.pdf
3. ^ For a full account of the litigation, see 10-K filing 2021, p.108
4. ^ https://www.intel.com/content/www/us/en/company-overview/company-overview.html
5. ^ For a full a list visit - https://insights.greyb.com/intel-subsidiaries/
6. ^ https://intelandmobileye.transactionannouncement.com/
7. ^ https://newsroom.intel.com/news-releases/intel-may-2020-acquisition/#gs.f1ai4u
8. ^ https://www.intel.com/content/www/us/en/newsroom/news/idm2-strategy-defined-60-seconds.html#gs.f17zib
9. ^ https://www.intc.com/news-events/press-releases/detail/1451/intel-ceo-pat-gelsinger-announces-idm-2-0-strategy
10. ^ 10-K filing 2021, p.96
11. ^ https://timesofindia.indiatimes.com/gadgets-news/intel-announces-the-13th-gen-intel-core-processor-family/articleshow/94489670.cms
12. ^ https://www.intel.com/content/www/us/en/company-overview/company-overview.html
13. ^ https://www.marketwatch.com/story/intel-reportedly-plans-to-lay-off-thousands-of-workers-with-details-potentially-emerging-alongside-quarterly-earnings-11665533944
14. ^ https://finance.yahoo.com/news/intel-declares-quarterly-cash-dividend-130000651.html
15. ^ https://siliconangle.com/2022/10/05/intel-hits-major-milestone-moves-toward-mass-production-quantum-computer-chips/