Intel semiconductor company (INTC) – Get Intel Corporation report appears to be headed in the right direction, but the company faces several challenges as it falls behind its competitors, says Stephen “Sarge” Guilfoyle.
Not only is the company heavily indebted, but it is also increasing its capital expenditures to increase its revenue.
“Intel is spending a ton of money and probably going somewhere we wish an American company had gone a few years ago,” Guilfoyle wrote in a recent Real Money Pro column. “That said, the load is heavy and the path is strewn with debris.”
The company has long-term debt that has shrunk to $33.5 billion, while its net cash has shrunk to $28.4 billion. Intel has four massive projects in the pipeline, including $20 billion in spending on a large new manufacturing facility near Columbus, Ohio, which will include two manufacturing plants. Intel also plans to spend $20 billion on a foundry construction project in Arizona and plans to build a smaller facility in New Mexico.
Rising capital spending is just one of the concerns investors have. Intel just acquired Tower Semiconductor (TSEM) – Get Tower Semiconductor Ltd reportan Israeli manufacturer, for $5.4 billion in cash.
“Investors, if they want to remain investors, must accept that expenses are going to be high and margin as well as earnings will be under pressure,” he wrote.
One hurdle Intel faces is heavily reliant on its customer computing group, which accounted for $10.1 billion in revenue but fell 7% from the prior year period. The drop in PC sales is also another factor. The company is also falling behind its competitors, Guilfoyle said.
“Meanwhile, the company’s bread-and-butter business is in decline, and the company is trailing its main competitors for big business in 2022,” he wrote. “Intel is here to stay, but the company is far from effectively competing with Nvidia (NVDA) – Get the NVIDIA Corporation report or advanced micro-devices (AMD) – Get Advanced Micro Devices, Inc. for the market sweet spot, or compete with Taiwan Semiconductor (TSCM) and become the foundry of America. The day will come. You have time.”