Intel: Where's Our 'Shareholder Value'?

Feb. 6.14 | About: Intel Corporation (INTC)

On May 2nd, Mr. Brian Krzanich took the helm of Intel (NASDAQ:INTC), the world's largest semiconductor company by revenue, and - unfortunately - one of the worst large cap tech investments over the last several years. While companies like Qualcomm (NASDAQ:QCOM) continue to make inroads across the compute continuum (Qualcomm is now worth more than Intel), and while Samsung and Apple (NASDAQ:AAPL) bolster their in-house chip teams significantly, Intel's attempts to push into the high growth tablet/smartphone markets have, so far, proven fruitless.

Intel's New CEO: Where's The "Shareholder Value"?

When Mr. Krzanich took over, the key message in all of his talks was that he had intended to reposition Intel to maximize the delivered shareholder value. Unfortunately, while I do believe that Mr. Krzanich is implementing the "correct" strategies and while I do think he's going to - in the long run - likely prove to be Intel's best CEO, I'm also somewhat puzzled that he hasn't been able to do much good for the share price.

Indeed, on May 2, 2013, Intel's shares traded at about $24.11. Today, about 9 months later, Intel's stock price sits at $23.52, slightly below where it was when Krzanich took office. In contrast, the Nasdaq (NASDAQ:QQQ) is up fairly nicely in that time-frame.

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Now, I'm fully aware that it takes a while, particularly in the semiconductor industry, to roll out new products to drive meaningful revenue growth. I also am fully aware that Krzanich couldn't really do much to the product pipeline in just 9 months. However, the big problem that I have with Krzanich is that he's given investors absolutely no reason to want to buy this stock. While many other "new" CEOs (such as Meg Whitman over at HP (NYSE:HPQ)) at least try to go ahead and create some buzz around their company's shares and to try to keep investors interested/encouraged with a more constant stream of developments, we've essentially had radio silence out of Intel.

So, what could Intel have done better?

Intel Really Screwed Up Its CES Presentation

At CES, Intel's management had a golden opportunity to show off next generation mobile silicon and to perhaps announce some design wins in either tablets or smartphones. Instead, Krzanich took the stage and gave an incredibly pointless demonstration of "wearables" and other "Internet of Things" devices, a good number of which were powered by chips with ARM (NASDAQ:ARMH) based technology.

Does Intel's management really think that a few demos of products with chip content likely in the sub $1 range is really going to get investors interested in their company? See, the problem is that the dismal showing at CES naturally leads investors to the following chilling conclusion: that Intel had NOTHING in mobile to show. True or not, it seems odd that the company would not take the opportunity to try to assure investors that, yes, things are progressing to plan.

Intel is a chip company first and foremost and with ventures like Intel Media and McAfee (both representing a huge waste of shareholder dollars) already proving to be pointless, seeing a bunch of demos of products that won't move the needle and won't address Intel's larger, longer-term problems was beyond irritating as a long-time Intel bull/shareholder.

How About A Bigger Buyback Or A Dividend Increase?

If Intel really believes that its shares are meaningfully undervalued, why not start getting more aggressive on the buyback? Intel had no problem borrowing money to buy back shares back in 2011, right before the business fell off of a cliff during the second half of 2012. In fact, the company recently issued about $6 billion worth of debt to "buy back stock" and yet the company hasn't been aggressive at all in buying back shares.

Is Intel saving up for a rainy day, or perhaps a major acquisition? Or is the company simply trying to rebuild its net cash position? At any rate, with the buyback activity slowed significantly, I don't see why Intel couldn't allocate a higher percentage of its free-cash-flow to the dividend, at least if the company believes that its business is at the trough that management seems to be indicating. Perhaps management is actually quite cautious about its long-term future and doesn't want to give more than it needs to back to shareholders until it has a clear line-of-sight to free-cash-flow growth?

At any rate, it'd be nice to know what the thought process behind not throwing its long-suffering shareholders a bone is.


Maybe at this point I'm just tired of the string of guide-downs, delayed products, contra-revenue surprises, and general inability to deliver that seems to characterize Intel's mobile efforts when I know that they could be doing much better. Its XMM 7160 LTE modem was too little, too late, and its Bay Trail SoC turned out to have a serious BoM problem (and integration problems), its 22-nanometer SoC process turned out to lead to ZILCH in terms of competitive advantage over 28nm TSMC built parts (likely due to the SoC teams failing to utilize it properly, rather than any problem with the process itself), and data center growth has disappointed for years now.

Intel needs to prove that it can deliver value to its long-suffering shareholders. At the end of the day, this value is the only thing that matters. Not 14-nanometer processes that get delayed, not all-day battery life in laptops that nobody wants to buy, and not mobile chips with a bill-of-materials problem that need significant contra-revenue support to be salable.

Disclosure: I am long INTC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.