Intel’s results for Q2 exceeded most expectations. After reporting that revenues grew 15% and earnings-per-share were up 52%, investors would normally expect the stock to go up. Instead, Intel is trading down about 8% at $48. Although Intel looks like a value investor’s dream, Intel's current plan cedes an important advantage to AMD for at least six months. That is not a great plan. There Is A Lot To Like About Intel Trading at a price-to-earnings ratio of 12, and with solid growth in revenues and earnings, there is a lot to like about Intel. The Company absolutely dominates the market for CPUs with 90%+ market share against its only real competitor Advanced Micro Devices. Graham and Dodd Value investors love this stock. But so do those who are willing to pay a higher premium for growth stocks. It's a rare stock that both Value and Growth investors can agree on. What's not to like? The problem is not on the financial statements. That's why investors who research stocks by using databases like FactSet or Morningstar to screen for stocks with favorable valuation characteristics will not find much to worry about, yet. The problem is that Intel has delayed its 10nm products until December 2019. Intel was supposed to be delivering 10 nm products at scale in mid 2015. If they finally arrive in December 2019 they will be over 4 years late — an eternity in terms of semiconductor product life cycles. Since 2015, Intel has improved its 14 nm production process enough that its current products are considered competitive with AMD processors produced on 12 nm production lines. But AMD is already sampling parts made on a 7 nm production line and expects to launch these products by mid 2019. The big thing to worry about is whether Intel’s 14 nm technology can make CPUs that are competitive with AMD’s 7 nm products? Intel has not addressed this question, but I am afraid the answer is no. This means that Intel may be at a competitive disadvantage to AMD starting with AMD's launch of 7 nm CPUs and ending when Intel's 10 nm CPUs are launched in late December 2019. If Intel's 10 nm products are delayed again, AMD's advantage could last a while longer. If this is the plan, it is easy to see how Intel's revenue and earnings growth could suffer in the 2nd half of 2019. A Second Problem Bob Swan, Intel’s Interim CEO, will most likely not be the CEO when the 10 nm products are supposed to be launched. Whenever a new CEO takes over, there is a tendency to clear the decks by writing off everything possible and resetting expectations so the new CEO has the best chance possible of exceeding expectations. The Best Case Scenario I would like to see Intel name a permanent CEO who then writes off all the expenses related to the 10 nm production line that have not panned out. The first conference call with the new CEO will be a turning point. If its obvious that Intel's 10 nm products cannot be launched by December 2019, I would hope that the new CEO would consider outsourcing to TSMC's 7 nm production line rather than extend the length of time they are at a competitive disadvantage. Everyone wants to buy low and sell high. But when stocks are cheap, there is usually something to be afraid of. There is a real threat to Intel, and they don't have a permanent CEO at the helm. I want to know what the company is going to do to materially increase its stock price, before I make an investment. Based on the Q2 conference call, I don't have confidence that Intel's long-delayed 10 nm products will launch in December 2019. Hold off buying Intel until a new CEO is named who will tell us how they are going to keep Intel's period of competitive disadvantage as short as possible. Tony Mitchell has consistently judged the news about Intel and AMD better than everyone else. If you would like to know when he updates his views, click here. If you would like to be notified when I write about stocks you are following, click here. Read More Hold Off Buying Intel Until They Have A Better Plan : https://ift.tt/2KfmbgH
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