Intel Is Looking Better With Recent News (NASDAQ:INTC)

Not too long ago, I wrote an article about many questions Intel (NASDAQ:INTC) had to answer going forward, given recent events that painted a company going from one failure to another. I changed my recommendation from strong buy to buy until these were answered. Along the way, as the price dropped, I kept picking up more shares, I guess instinctively believing the company could turn things around, and so far the answers have been positive. And not all from Intel.

My frustration with Intel’s server chips is not unique by any stretch, and the damage they have done is not easily repairable. Servers have inertia, and unless you give them a good reason to, customers are going to stick with what they have been using. This means not only did Intel lose this on many customers they have, they will now be fighting that same inertia to gain those customers back that are currently happy with AMD (AMD) products. Additionally, it will be far more difficult to win back customers who have moved to ARM. So, even if they get on track here, there’s long-term damage. More than that, Intel doesn’t sell directly to customers, they sell to OEMs who sell to customers. Those OEMs now have serious questions about Intel products and are much less likely to commit as fully, or to push customers in that direction.

Having said all that, even limiting the damage is better than the complete collapse Intel is currently experiencing, with the exasperating constant delays and failures with their server lines. Intel has indicated that finally the Sapphire Rapids products are shipping (in limited quantities), although they are still ramping up. They also gave a bit more visibility into the products, and some of the accelerators they have more or less embedded into different products in the line. These specialized units have limited scope, but where they matter, they can make a dramatic improvement. I guess the best takeaway from this is, there aren’t any further delays, but the situation has still been a disaster; it just did not get worse. It could have. It still may.

Next, we have the poor GPU release that was delayed many times, and seemingly had undesirable products. This is as above, still bad, but more meaningfully improved. Intel did finally release their “Alchemist” line of GPUs, and they weren’t really that bad. The timing is still horrible, since the GPU market has a glut, and NVIDIA and AMD are releasing brand-new lines. More than that, the GPUs are bigger than competing products, and use more power. So, we went from a very bad situation to a poor one, but it’s a big improvement, because these products are at least competitive in some contexts (and very good in some regards), and are finally out and selling. This was a first release for Intel in the discrete GPU world (let’s not go back 20 years to invalidate that), and now it’s over. Given the products generally get 3.5 stars out of 5 on most sites, it’s not that bad, and it’s something they can build on with their next release. As mentioned, although the situation is still poor, this is in a very meaningful way a victory for Intel, in that it predicts better results moving forward.

I was also concerned about AMD winning market share with a clearly inferior product line. In servers, it was easy to accept, because they had a better product, by a lot. But, why were AMD earnings so good and Intel’s so bad, when Intel had better products in mobile and desktop? Well, AMD tanked, and went down hard, so news of their market share gains was almost certainly inaccurate. In reality, when you consider AMD, their percentage drops are much more significant because some of their revenue is almost invariable, like console sales. They certainly aren’t going down. And server revenue was up. So, they took a beating in the PC market. Some will point out that AMD’s YoY was still up, but keep in mind, Xilinx was not part of their revenue a year ago. The disturbing “fact” that AMD was not suffering from the macroeconomic environment and kept eating up share got dispelled rather abruptly. It made no sense before, but now it does.

Speaking of AMD, the releases of Zen 4 and Raptor Lake have happened, and Zen 4 comes up a bit short. Not a lot, though. But, AMD gave up two “advantages”, without gaining superiority. For one, they jacked their power usage up a lot and went well outside their most efficient clock speeds. This is something Intel has done for quite some time, but AMD stuck to much more efficient clock speeds. Also, AMD moved up a manufacturing node, to TSMC’s 5 nm, whereas Raptor Lake from Intel remains on Intel 7.

On the plus side for AMD, performance is much more competitive. But, the minus side is, wafers on TSMC’s 5 nm are much more expensive, as NVIDIA’s (NVDA) CEO made perfectly clear. And given AMD’s malicious pricing for the Ryzen 4, which is further aggravated by the cost of DDR5 and the new motherboards, and it’s very clear Zen 4 did not stake AMD to an advantage, and probably will have difficulty against Raptor Lake unless AMD seriously reduces their prices. But do their costs allow it? It’s doubtful they can win a price war, given Intel makes their own chips and the incremental cost of making more is going to be less than what AMD has to pay for TSMC’s very expensive 5 nm wafers.

That’s been the news since my last article, and it’s been all good for Intel. But, let’s qualify this, in the context of servers and GPUs, it’s good in the sense that it didn’t get worse, and they finally delivered something, but neither market is healthy for Intel; one is bleeding market share, the other doesn’t have any. Even in CPUs, although Zen 4 couldn’t topple Raptor Lake, it’s extremely close, and outside of AMD’s predatory pricing, could be very competitive.

What we need to pay attention to going forward is news on Intel’s newest manufacturing nodes. Any delays there would be very bad, since delays to Intel 4 would push Meteor Lake back (which should restore Intel to clear performance leader, if on time), and any delays to Intel 3 would do serious damage to their foundry aspirations, which are critical to the long term success of the company.

As I mentioned, I’m all in, and at these prices, consider the rewards far greater than the risks, especially now that we’re seeing signs of competence and execution. Of course, there are still unanswered questions, and some situations that are far from good, but at this price, wouldn’t there have to be? This is a good time to buy, before everyone else figures it out too.