On February 17, 2022, Intel held the 2022 Investor Conference online, where Intel CEO Pat Kirsinger delivered a keynote speech outlining the key elements of the company's strategy in the future and plans for long-term growth in an era of unprecedented semiconductor demand.
Kirsinger believes that with the right strategy and the right team, Intel is confident of achieving its "ambitious" goals for the future and creating long-term value for shareholders. He said:
"The continued development of technology is driving the continued, long-term demand of the semiconductor market. By 2030, the market size is expected to exceed $1 trillion. In this growth opportunity, we hope to achieve a revenue growth of 10%-12% by 2026 by increasing innovation, deepening cooperation with customers and partners, and leveraging our core strengths to expand traditional markets and disrupt new markets. ”
Image source: Intel
Intel Chief Financial Officer David Zinsner was accompanied by the heads of the Data Center and Client Computing business units and delivered a series of keynote speeches at the conference, answering questions about the technology roadmap, Intel's profit margins when investing in increased capacity, and other topics that are widely concerned by investors.
At the meeting, Chief Financial Officer David Zinsner provided a 2022 outlook with full-year 2022 revenue of $76 billion; non-GAAP gross margin of 52 percent; non-GAAP EPS of $3.50; and full-year capital expenditure of approximately $27 billion. As the company increases investment to accelerate long-term growth, adjusted free cash flow is expected to be -1 billion to $2 billion. (Note: In general, a company's NON-GAAP profit is slightly higher than a GAAP profit.) ）
Overall, the outlook was higher than Wall Street's consensus expectations. Ahead of Thursday's investor conference, Wall Street analysts are forecasting $75.1 billion in 2022 revenue, $344 million for EPS, $26.93 billion in full-year capital expenditures and 52.1% gross margin; revenue growth of 3% in 2023 and 8% growth in 2024.
After the meeting, Intel's stock price edged up less than 1%, and then turned lower. By the close, Intel shares were down 1.37% at $47.57 per share.
Revenue growth in 2022 is slightly below 2%, and long-term earnings maintain growth
At the meeting, Intel expects revenue growth to be slightly less than 2% this year. At the same time, in response to the widespread concern of investors about Intel's profit margin when investing in increasing production capacity, Intel said that with the gradual implementation of CEO Pat Gel singer's plan to "transform" Intel, profit growth will accelerate in the next few years.
Intel also mentioned the Smart Capital strategy to provide cash flow for business growth while creating flexibility and providing a higher return on investment. Intel says:
Under The Smart Capital strategy, Intel intends to take a rigorous approach to evaluating its investments while offsetting capital expenditures with government incentives, customer engagement, and other creative partnerships. This program will enable the company to quickly seize market opportunities and gain share while managing profit margin structures and capital expenditures.
(1) Revenue growth: Revenue in 2026 increased by 10%-12% year-on-year
At the meeting, Intel said that in the long run, Intel expects revenue growth in 2023 and 2024 to reach mid-to-high single digits, and revenue growth in 2026 will reach 10%-12%.
In this regard, David Zinsner, Chief Financial Officer of Intel, said:
"We want to achieve the growth targets outlined today by focusing on a growing market of size and growth, investing in our technology roadmap, and strict financial management. We will combine financial discipline with revenue growth, gross margin expansion and strong cash flow. ”
(2) Profit growth rate: In the long run, the gross profit margin expands
At the meeting, Intel Chief Financial Officer David Zinsner also made a forecast for gross margin: gross margin will be 51%-53% in the next three years, and will expand to 54%-58% in 2025 and 2026.
In addition, Intel says:
The Company intends to maintain strict cost discipline to further improve cost efficiency to drive gross margin expansion.
It is worth mentioning that before the acquisition of Tower Semiconductor, Intel executives predicted a gross margin of 52% in the first quarter in January. At the meeting, Intel CFO Zinsner also specifically mentioned the acquisition of Tower Semiconductor, saying that the size of the labor market will reach $140 billion in the 2026 years.
Source: Intel Business Profile and Technology Roadmap
(1) Business overview
Judging from Intel's fourth-quarter financial report, overall, the revenue of the PC-related CCG division fell by 7% year-on-year, while the pan-data center business unit DCG and the Internet of Things division IOT performed strongly, with a year-on-year growth rate of 20% and 36%. In addition, PSG revenue in the Programmable Solutions Division increased 15% year-over-year, while NSG revenue in the Non-Volatile Storage Solutions Division decreased by 18% year-over-year.
(2) Technology roadmap
In the presentation, Intel unveiled its product roadmaps and key execution nodes for key business units, including technology roadmaps for consumer and data center chips, covering data centers and artificial intelligence, client-side computing, accelerated computing systems and graphics, Intel foundry services, software and advanced technologies, future roadmaps for networking and edge computing, and the latest technological advancements. The specific content is as follows:
1. Data Centers and Artificial Intelligence
At the meeting, Intel Data Center and Artificial Intelligence (DCAI) Announced the next generation of Intel Xeon product roadmap, including Sapphire Rapids processors delivered from the first quarter of 2022, manufactured on intel 7 process, Emerald Rapids, launched in 2023, manufactured on Intel 7 process, and Sierra Forest and Granite Rapids launched in 2024. It will be manufactured based on the Intel 3 process.
At the same time, Intel said that in the future, Baseband Xeon will adopt a new architectural strategy:
Future generations of Xeon will have a dual-track product roadmap based on both the P-core and the E-core to integrate the two optimized platforms into a common, industry-defining platform. Maximize product performance per watt and segmentation capabilities to fully enhance Intel's overall competitiveness in the industry.
2. Client-Side Computing (CCG)
As can be seen in the previous financial report, despite the lack of growth, the PC-related CCG division is still the most core department of Intel. At the meeting, Intel also outlined product updates for the CCG division in the coming years:
Raptor Lake: Shipped in the second half of 2022, Raptor Lake will deliver up to double-digit performance improvements compared to Alder Lake, with enhanced overclocking capabilities, manufactured on the Intel 7 process.
Meteor Lake and Arrow Lake: Meteor Lake will be manufactured on the Intel 4 process and will ship in 2023; Arrow Lake will be the first Intel product to be manufactured using the Intel 20A process and using an external process, and will follow up in 2024.
3. Accelerated Computing Systems and Graphics (AXG)
Intel has high hopes for the division, which expects to generate more than $1 billion in revenue in 2022. As Intel's growth engine, the three sub-divisions of the Accelerated Computing Systems and Graphics division are expected to generate nearly $10 billion in revenue by 2026. The specific product planning is as follows:
Visual computing products: Intel's Iris graphics is expected to ship more than 4 million independent GPUs in 2022; the Endgame project will officially go live later this year.
Supercomputing products: Sapphire Rapids with built-in high-bandwidth memory (HBM) is capable of providing up to 4x the memory bandwidth of applications with a significant upgrade in performance; Ponte Vecchio GPUs for the Aurora supercomputer project later this year, facing complex financial services workloads; Arctic Sound-M, Intel's first GPU equipped with a hardware AV1 encoder, is now available to customers. Shipments are expected to be in mid-2022; the Falcon Shores architecture is scheduled to be available in 2024 with significant performance improvements.
Custom Computing: Custom products will be developed for many emerging workloads such as blockchain, edge supercomputing, high-end in-vehicle infotainment systems, and immersive displays.
4. Intel Foundry Business
Intel specifically mentioned that Intel Foundry Services (IFS) is assembling a dedicated automotive team to provide complete solutions for automakers, and the partnership with Mobileye allows Intel Foundry Services (IFS) to deliver advanced process technologies to automotive customers.
In addition, Intel also demonstrated its development path of open central computing architecture, vehicle-level foundry platform, and the transition to advanced technology.
5. Software and advanced technology
As a key component of Intel's competitive advantage, software adds value to the entire software stack of Intel's client, edge, cloud, and data center businesses.
At the conference, Intel showcased its technological progress in cross-platform, open development, and artificial intelligence technologies.
6. Networking and Edge Computing (NEX)
In terms of intelligent architecture, Intel showcased the Infrastructure Processing Unit (IPU). The computing device can be integrated into the data center, accelerating cloud infrastructure development and maximizing performance.
In addition, Intel also demonstrated the latest technology roadmap in terms of mobile network transformation and accelerating the development of the intelligent edge.
7. Technological progress
Process: The Intel 7 is in production and shipping in bulk. The Intel 4 will use extreme ultraviolet lithography (EUV) technology and is expected to go into production in the second half of 2022, with about 20% more transistor performance per watt. The Intel 3 will have more features and an approximately 18 percent improvement in performance per watt, with production expected in the second half of 2023. Opening up the Amy era with two technologies, RibbonFET and PowerVia, the Intel20A will achieve an approximately 15% improvement in performance per watt and will be operational in the first half of 2024. The Intel 18A will achieve an approximately 10% improvement in performance per watt and is expected to come into production in the second half of 2024.
Package: In 2022, Intel expects to deliver leading packaging technology on Sapphire Rapids and Ponte Vecchio, with trial production on Meteor Lake. Foveros Omni and Coveros Direct are advanced packaging technologies announced by Intel at Intel's Accelerated Innovation: Process Process and Packaging Technologies Online Launch in July 2021 and are expected to come into production in 2023.
Innovation: Intel expects Moore's Law to continue. By the end of the century, Intel expects to supply about a trillion transistors in a single device.
Intel's tough road to transformation
Since taking the helm of Intel, the "legendary veteran" of the semiconductor industry has developed a "revival plan" for Intel and introduced a series of drastic reforms to "reinvigorate the momentum." For example:
Launched a new IDM2.0 strategy, using third-party chip foundries to supplement its own processes, and deliberately established Intel Manufacturing Services to better integrate into the global chip supply chain;
Redefined the name of future process nodes and promoted the progress of process processes;
Adopt a more open attitude, and even prepare to provide customers with x86 licenses, in order to build a new ecosystem with customers. These strategies have also been supported by a number of semiconductor customers, including Amazon AWS and Qualcomm.
At present, Intel's various strategies are also being carried out in an orderly manner.
In terms of foundry business, Intel will invest $20 billion to build 2 chip manufacturing plants, and the future investment may increase to 100 billion US dollars to build 8 manufacturing plants in Ohio. Recently, Intel also spent $6 billion to acquire Tower Semiconductor to further strengthen the IDM 2.0 strategy;
In terms of process process, Intel is also ready to evaluate the two breakthrough technologies of RibbonFET and PowerVia, breaking through the Intel 20A process and opening the semiconductor "Amy era".
At the same time, Intel is also preparing to split Mobileye.
If these challenging programs are successful, Intel will undoubtedly construct a wide "moat" in the long run. What's clear, though, is that these plans can be very expensive, putting pressure on Intel's once-reliable margins, resulting in a 21 percent year-over-year decline in Intel's net profit in the fourth quarter.
This tested investors' patience, causing Intel's stock price to fall sharply every time it released its earnings report. Over the past year, Intel's stock price has fallen by a cumulative 22 percent.
Investors such as NZS Capital have expressed a wait-and-see attitude. Bathgate, the company's fund manager, said NZS didn't invest in Intel because there were other companies "going all out." Intel must show a better financial position, he said, prove that it can attract large outsourced chip customers and stop losing market share. He said:
"I think kirsinger deserves good results for what he did, but it's a very difficult job. Those who think Intel can solve the problem in a few years, or even quarters, may not understand the challenges he faces.
But Kirsinger's efforts have also won him praise from a number of institutional investors.
Before Kilsinger, for example, Third Point was notorious for urging Intel to spin off its design and manufacturing operations. Recently, however, Daniel Loeb of hedge fund Third Point said in an investor letter that the chipmaker might be "worth revisiting." He said:
"We are encouraged by Intel's aggressive investment plans, we knew from the outset that Intel's transformation would be complex and lengthy, and we are pleased to see Mr. Kirsinger sacrificing near-term gains for long-term growth."