American semiconductor manufacturer Intel (NASDAQ:INTC) stocks are trading at price levels not seen since 2016 strong profit reportthe guidance was exceptionally weak, but stocks managed to grind higher despite the warnings. The markets may have finally begun to believe in the value of his heavy investments going forward semiconductor manufacturing (fab) plants. These are extremely costly and can take up to five years to be fully operational. Intel is uniquely a true American semiconductor maker that should carry a premium compared to other semiconductor companies that rely on outsourcing the manufacturing of their chips overseas. Texas Instruments (NYSE:TXN) and Global Foundries (NASDAQ: GFS) are the other two owners of factories in the US
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CHIPS for America Act
The US share of global semiconductor manufacturing capacity has fallen from 37% in 1990 to 12% in 2021. The CHIPS Act of 2022 was adopted in July 2022 to strengthen domestic chip production. Intel is a major benefactor of the CHIPS Act as the largest domestic chipmaker. The CHIPS Act provides $52 billion in manufacturing and research grants and provides a 25% investment tax credit (ITC) to boost chip production in the US. Unlike its competitors such as Advanced Micro Devices (NYSE:AMD), Intel produces its chip in-house. Manufacturing (fab) plants are extremely capital intensive and take years to build. This is why most of the top chip companies outsource their chip production to companies like Taiwan Semiconductor Manufacturing (NYSE: TSM) and Samsung Electronics (OTCMARKETS: SSNLF). China’s claim to Taiwan threatens Taiwan Semi and North Korea threatens South Korea and Samsung. Intel has no geopolitical risk. It would actually be a benefactor in the event of political unrest.
Intel’s Fab Investments
Competitors such as AMD are literally at the mercy of these foreign chip factories. Intel stocks are down because of the huge investments it’s made in building more factories, but they’re about to pay off now that they’re running out of time to get online. It is a $20 billion investment in Fab 42, the Ocotillo campus in Chandler, AZ, which became fully operational in 2020 processing 10nm chips, thanks to government incentives under the Chip Act. CEO Gelsinger commented, “We are excited to be working with the state of Arizona and the Biden administration on incentives to encourage this type of domestic investment.”
This is what the graph says
The weekly candlestick chart on INTC made a swing low and doji bottom at $24.59. This level has not been seen at INTC since 2015. The reversal of the doji formed a weekly market structure low (MSL) buy trigger above $27.06. It was triggered when the weekly stochastic moved back up through the 20 band. The weekly 20-period exponential moving average (EMA) continues to fall at $31.37, while a weekly 50-period MA is falling at $39.71. The upside peaked at $31.34 after surprise gains formed a rising channel following a 12-week sell-off. This sets up a weekly bear flag as shares fell through the lower ascending channel at $30.59. Weekly volume actually fell as the stock floated higher, but started to rise again after the stock attempted to reach a weekly market structure high (MSH) below $28.91. To avoid the bear flag collapse, stocks must break through the weekly 20-period EMA at $31.37. Pullback support sits at the weekly MSL trigger at $27.05, $25.65, $24.59 swing low, $23.48, and the $21.89 levels.
Surprise upside profit
On October 27, 2022, Intel announced third quarter results for fiscal 2022 for the quarter ended October 2022. The company reported earnings per share (EPS) of $0.59 excluding one-time items versus consensus analyst estimates for a earnings of $0.33, a hit of $0.26 per share. Revenue fell (-15.4%) year over year (YoY) to $15.4 billion, beating consensus analyst estimates of $15.31 billion. CEO Gelsinger commented: “In June, we were one of the first companies to report an abrupt and marked slowdown in demand, which has exceeded our initial expectations and is now having an industry-wide impact across the entire electronic supply chain. outlook for the fourth quarter and we plan for economic uncertainty to persist into 2023.” He went on to explain that they are further accelerating cost savings and efficiency efforts as they move to IDM 2.0 to unlock “the full potential of the IDM advantage.”
Ugly guidance
Intel provided downside guidance for Q4 2022 with earnings per share of $0.20 versus $0.68 according to consensus analyst estimates. Revenue is expected to be between $14 billion and $15 billion versus $16.43 billion according to consensus analyst estimates. If they went to lowball accompaniment,
Intel Foundry Services
Intel is building more factories on the Ocotillo campus. It also has two new manufacturing plants (factories) in Ohio, which are expected to begin production by 2025 at a cost of $20 billion. Intel plans to begin construction of two new plants in Magdeburg, Germany, in 2023 to be operational by 2027 at a cost of 17 billion euros. It is expanding its factories in Ireland at a cost of 12 billion euros. These investments have had a negative impact on Intel’s free cash flow. Pain now for gain later is the theme here. Intel’s factories will not only produce their own chips, but will also produce chips for other companies under the Integrated Device Manufacturing (IDM) 2.0 model. It has already created a division called Intel Foundry Services led by semiconductor veteran Dr. Randhir Thakur. In his Q3 2022 conference call, CEO Gelsinger described IFS’ future opportunities: “Since Q2, IFS has expanded engagement to seven of the top ten foundry customers, coupled with consistent pipeline growth of 35 customer test chips . In addition, IFS increased qualified opportunities by $1 billion to more than $7 billion in deal value, all ahead of us welcoming the Tower team with expected close of the merger in Q1 ’23.”
