Intel is the most profitable maker of computer chips. But in the recent past they forfeited their position as the maker of the most advanced chips in order to aim for a more profitable bottom line. When management changed a few years back they also pushed out a protégé of the former head of the company. That person, Patrick Gelsinger, is now back at Intel and running the company. We see similarities to when Steve Jobs was forced out of Apple and then came back to introduce smart phones and eventually be a company with a $2.74 trillion market cap. So, we began to think about Intel and chip making in America.
New Vision for Intel
Gelsinger has said that Intel will aim in the coming years to bypass Samsung to get to the second spot behind Taiwan Semiconductor for their top quality chips. They will also begin a chip foundry business making the sorts of computer chips that can be used in a variety of products and are not just custom-made for a single use. And, Intel under Gelsinger intends to significantly ramp up computer chip production in America with a $20 billion investment in Ohio near Ohio State University. That investment is to be followed by a $100 billion investment in the same area to create a Silicon Heartland to rival Silicon Valley.
Remedy for Computer Chip Supply Chain Issues
As the world comes out of the depths of the Covid pandemic supply chain problems have affected numerous US companies. Car makers have reduced production because they cannot get enough foreign-made chips for their vehicles. Prices have gone up for both new and older vehicles contributing to the worst inflation in four decades. Intel is buying Tower Semiconductor’s chip foundry business for $5.4 billion. And, they are putting $1 billion into a fund to speed up concept to product in the chip foundry business. Along with the billions invested by Intel in new facilities in Ohio, both Samsung and Taiwan Semiconductor are investing billions in chip production facilities in the USA.
Is Intel a Good Investment Today?
Intel stock fell in price after the announcement about investing $20 billion in chip foundries in Ohio. That is a lot of money to invest when profits are at least five years away. Intel’s stock bottomed out at $14 a share in the depths of the Financial Crisis and at $45 a share after the Covid Crash. It has peaked in the $60s in recent years and traded down to the mid $40s. In early March of 2022 it traded for $48 a share giving it a market cap of $195 billion and has a 3.04% dividend yield. Its P/E ratio is 9.90. Should an investor look at Intel as an old stalwart with a nice dividend or a company with new growth potential? One might think of two comparisons. IBM led the world in mainframe computers, missed the boat on desktop computers and had no one to lead them into the brave new world of handheld devices. It is still a big company with a $113 billion market cap and a 5% dividend yield but not the Apple, Microsoft, or Google that it could have been. And, there is Apple that floundered after the loss of Steve Jobs and then soared with the return of a charismatic leader who knew the business and the companies. We think that Intel today is closer to the Apple story with the return of Gelsinger. An extra boost to Intel, we believe, will come from the US reshoring critical industries.
Intel and Chip Making in America – SlideShare Version