Intel is in a difficult demand environment
Things have been difficult for the semiconductor industry since the second half of 2018, when the effects of the US-China trade war started to impact end demand. The industry’s earnings bottomed out to an almost three-year low in the first quarter of 2019. Despite their weak earnings results, some chip stocks have made new 52-week highs on anticipation of strong growth in the coming quarters.
However, it was the reverse for Intel (INTC), whose second-quarter guidance bottomed out and whose full-year outlook reflected demand weakness. The company’s stock fell 9% a day after its first-quarter earnings release on April 25. Intel’s new CEO, Bob Swan, talked about his strategy to boost Intel’s growth and shareholders’ returns on the company’s first-quarter earnings call.
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Intel’s new CEO’s growth strategy
Swan stated that he aims to facilitate Intel’s transformation to a data-centric company by focusing on three areas: expanding its TAM (total addressable market), accelerating its innovation, and improving its execution. These are strategies that its rivals also adopted. Advanced Micro Devices (AMD) grew by improving its execution, NVIDIA (NVDA) grew by expanding its TAM, and Micron (MU) grew by accelerating its innovation.
Swan stated that Intel is looking to capitalize on technologies such as AI and 5G. It aims to focus on markets in which technology can play a key role in customers’ success while delivering strong returns for the chip maker. A similar strategy has been adopted by NVIDIA, which invests in verticals that are large enough to sustain huge investment that goes into exploring AI opportunities and delivering strong returns for the long term.
Swan stated that Intel is expanding its TAM in the AI data center, automotive, and 5G network and edge infrastructure spaces. He stated that Intel is expanding in these markets by accelerating its efforts in six pillars of innovation: process technology, architecture, memory, interconnect, security features, and software. He added that Intel is accelerating the production of its 10 nm process node, architecture such as graphics processing units and visual processing units, 3D XPoint Optane memory, and software that supports AI.
Swan explained that Intel is improving its product execution by focusing on fewer products that are close to its core technology and deliver high returns. It’s dissolving low-margin businesses that require huge investments, such as the 5G smartphone modem business.