Intel Corp. (INTC, Financial) laid out its 2022 strategy on Thursday at its annual investor meeting, outlining key elements of the company’s path to long-term growth during an era of unprecedented demand for semiconductors.
Underpinning the San Francisco-based company's long-term growth plan is its "Smart Capital" strategy, which aims to help fund growth while creating flexibility and delivering higher returns on investments. Under the Smart Capital strategy, Intel intends to employ a disciplined approach to its investments and leverage government incentives, customer participation and other creative partnerships as offsets to capital spending. This will allow the company to adjust quickly to opportunities in the market and gain market share while managing its margin structure and capital spending. Key elements of Smart Capital include Smart Capacity Investments, Government Incentives, Infrastructure Agreements and External Foundries.
Smart Capacity Investments
Intel is aggressively building out “shells,” which are the smaller portion of the overall cost of a fab (fabrication plant) but have the longest lead time. Having available shell space gives the company flexibility in how and when it brings additional capacity online based on milestone triggers such as product readiness, market conditions and customer commitments.
Government Incentives
Intel is continuing to partner with governments in the U.S. and Europe to advance incentives for domestic manufacturing capacity for leading-edge semiconductors, as it builds advanced fabs that secure domestic supply and provide opportunities for bolstering economic growth in local communities.
Infrastructure Agreements
Intel is also exploring innovative ways to optimize its investments in new fab projects. For example, Intel announced a memorandum of understanding with Brookfield Asset Management (BAM, Financial), one of the largest global investors in real assets, whereby Intel and Brookfield will explore project finance options to help fund new Intel manufacturing sites and certain related renewable power opportunities. This would increase Intel's capital flexibility and help accelerate its manufacturing build-out.
External Foundries
Finally, Intel intends to make effective use of external foundries, leveraging some of their unique capabilities to help deliver leading products.
Outlook
“The continued proliferation of technology is driving sustained, long-term demand for semiconductors, creating a $1 trillion market opportunity by 2030,” said Pat Gelsinger, Intel's CEO. “With that opportunity in mind, today we outlined our strategy and roadmap for accelerating to 10%-12% year-over-year revenue growth by 2026 by doubling down on innovation, driving even deeper collaboration with our customers and partners, and leveraging our core strengths to successfully grow traditional markets and disrupt new ones. Our goals are ambitious, but I’m confident we have the right strategy and right team to achieve them and to deliver long-term value for our shareholders.”
Management said it sees several opportunities to expand gross margin by 2025. These include executing the company’s investments to deliver five nodes in four years to regain technology leadership, better sales mix of leadership products and scaling of higher-growth emerging businesses. Intel also intends to maintain strong cost discipline to identify further cost efficiencies to drive gross margin expansion and deliver leadership products with best-in-class cost.
As for financial projections, for 2022, Intel expects revenue of $76 billion, a non-GAAP gross margin of 52%, non-GAAP EPS of $3.50 and net capital expenditures of approximately $27 billion. Adjusted free cash flow is expected to be negative, ranging from a loss of $1 billion to a loss of $2 billion as the company ramps its investments to accelerate long-term growth. In the longer term, Intel expects year-over-year revenue growth moving to the mid- to high-single digits in 2023 and 2024, with year-over-year growth increasing to the 10%-12% range by 2026.
