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Bank of America (BofA) thinks Intel's current strategy of ripening demand for its products before incurring significant capital expenditure (CapEx) could yield material dividends, especially in relation to liquidity needs and capital intensity, which measures the amount of investment in physical assets needed to generate a unit of revenue.
As we noted recently, Intel’s turnaround strategy under its new CEO, Lip-Bu Tan, focuses on regaining market share through accelerated process technology advancement. In an aberrant departure from the previous norm, however, Intel plans to switch to its next-gen 14A node only if it is able to secure confirmed commitments from customers.
Concurrently, Tan is also trying to rejuvenate Intel's x86 ecosystem via Panther Lake (current-gen) and Nova Lake (next-gen) CPUs, as well as Granite Rapids GPUs, with support for Simultaneous Multi-Threading (SMT) in the offing.
To reduce overheads, Intel is slashing its workforce by 15 percent from its previous strength of 99,500 (as of the end of 2024). Bear in mind that the company culled 15,000 jobs in 2023, and a further 15,000 in 2024. Intel is also closing its plants in Germany and Poland.
This brings us to the core of today's topic. Bank of America now thinks that Intel's new strategy of engaging customers early to "form demand before CapEx spend" is a "credit positive," more sensible approach to its foundry business, one that should reduce the overall execution risk around the 14A node process, and help Intel resemble a "fabless/quasi-fabless semiconductor," replete with lower capital intensity and liquidity needs.
Intel's new strategy would make the most of its cash balance of $21 billion (as of the 28th of June), and could pave the way for "material debt reduction," which was recently identified by Fitch as a fundamental outcome needed for a credit rating upgrade.
As such, BofA does not expect Intel to issue new debt anytime soon. Instead, the bank thinks Intel would rely on its cash balance and commercial papers to meet debt maturities, which consist of $2.25 billion in debt obligations that were due in July 2025 and another $1.5 billion that remain due in March 2026.
Intel might also employ additional asset sales from its Mobileye and Altera units, or liquidate a portion of its Network and Edge (NEX) business, to aid its de-leveraging goals.
Of course, Intel continues to face phenomenal challenges, including "stemming market share losses," revamping its product line for AI workloads, and resolving lingering uncertainties around the 18A node.
In a rare bit of positive development, it seems that Intel's Lip-Bu Tan was able to win over President Trump in their face-to-face meeting in the White House on Monday, with the President making a jarring volte-face in the aftermath, pivoting away from his earlier characterization of Intel's CEO as a national security threat and demanding his resignation, to heaping praise on Tan's "success and rise," and going so far as to term the CEO's achievements an "amazing story."
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