Flattened Structure And AI Focus Will Drive Operational Efficiency

Key Takeaways

• Flattening its structure and refocusing its portfolio might improve agility, profitability, and innovation, boosting future revenue and competitive advantage.
  
• Strategic AI focus and foundry service enhancement could increase market share and revenue through growth in emerging markets and strengthened customer trust.
  
• Organizational complexity and slow AI adaptation hinder innovation and scaling, risking competitive positioning and future revenue growth amid economic uncertainties.

Catalysts

Designs, develops, manufactures, markets, and sells computing and related products and services worldwide.

• Intel is focusing on flattening its organizational structure to enhance agility, make swifter decisions, and foster innovation, which could lead to improved product development and competitive advantage, positively impacting future revenue and earnings growth.
  
• By refocusing its portfolio and eliminating non-core distractions, Intel aims to decrease operating expenses and streamline operations, potentially leading to improved profitability and net margins in upcoming years.
  
• The strategic push toward developing best-in-class products for new and emerging AI workloads, along with refining their AI strategy, positions Intel to capture growth in an expanding market, likely boosting future revenue and market share.
  
• Intel plans to strengthen customer trust in its foundry services by ensuring reliability and customer service, potentially leading to an increase in foundry revenue as the company builds its reputation and customer base.
  
• Intel's efforts to optimize manufacturing processes and leverage existing assets without immediately expanding capacity could result in reduced capital expenditures and better asset utilization, positively affecting both future cash flow and returns on investment.

Intel Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Intel's revenue will grow by 1.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from -36.2% today to 10.9% in 3 years time.
• Analysts expect earnings to reach $6.1 billion (and earnings per share of $1.22) by about April 2028, up from $-19.2 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $7.5 billion in earnings, and the most bearish expecting $3.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.7x on those 2028 earnings, up from -4.6x today. This future PE is lower than the current PE for the US Semiconductor industry at 22.9x.
• Analysts expect the number of shares outstanding to grow by 2.47% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.85%, as per the Simply Wall St company report.

Intel Future Earnings Per Share Growth

Risks

• Organizational complexity and bureaucratic silos are hindering innovation and agility, which could adversely affect product development and revenue growth.
  
• The need to significantly reduce OpEx and CapEx indicates financial strain, which may impact net margins and future earnings if not managed effectively.
  
• The potential economic slowdown, exacerbated by tariff uncertainties and macroeconomic pressures, poses a risk to customer demand and future revenues.
  
• Intel's AI strategy and adaptation to emerging workloads require significant transformation, and slow execution in this area could impact competitive positioning and revenue prospects.
  
• Capacity constraints and reliance on older product lines suggest challenges in manufacturing scalability, impacting gross margins and revenue growth potential.

Valuation

• The analysts have a consensus price target of $21.777 for Intel based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $29.45, and the most bearish reporting a price target of just $14.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $55.9 billion, earnings will come to $6.1 billion, and it would be trading on a PE ratio of 22.7x, assuming you use a discount rate of 10.8%.
  
• Given the current share price of $20.34, the analyst price target of $21.78 is 6.6% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.