Semiconductor chip manufacturer Intel Corp. (INTC, Financial) is arguably one of America's most innovative and creative companies. However, in the second quarter of 2022, it experienced a 22% year-over-year decline in revenue. The company lost a significant amount of money in the Client Computing Group and Data Center area. It ended with a net loss of $454 million for the quarter. This is not great news when most IT stocks are taking a tumble.
Intel is facing many challenges at the moment. One of the biggest is high inflation, which eats into its profits. The company is also contending with a sluggish semiconductor industry, making it difficult to compete. In addition, Intel is up against tough competition from other companies, including Qualcomm Inc. (QCOM, Financial) and Samsung Electronics Co. Ltd. (XKRX:005930, Financial). Intel will need to find a way to overcome these challenges if it wants to remain successful in the future.
In particular, Advanced Micro Devices Inc. (AMD, Financial) is closing the gap on Intel in the battle for market share in the CPU market. AMD has been gradually siphoning market share away from the company with its Zen architecture. The benefits of AMD's approach are clear; its CPUs offer better value for money, more cores and threads as well as improved energy efficiency. AMD has also benefited from Intel's recent troubles, especially production delays. As a result, it is now well positioned to take advantage of Intel's weaknesses and capture a larger share of the CPU market.
Nevertheless, Intel's new Raptor Lake processors are a positive sign for its prospects. Bulls of the company are hopeful that it will be able to stage a comeback in the coming quarters. This new series promises to be Intel's most powerful ever, but investors will want to see how they perform before making a decision.
AMD is growing at Intel's expense
Intel has long been the dominant player in the x86 CPU market, but it now finds itself in a tough fight. While Intel still leads overall, AMD is quickly gaining ground as the company struggles to keep pace. The rivalry between the two companies has intensified in recent years, and both are investing heavily in research and development to gain an edge. Intel has recently been hit by a series of setbacks, including delays in its 10nm manufacturing process. As a result, Intel is now facing pressure from all sides as it tries to maintain its lead in the x86 CPU market.
In addition, AMD's Ryzen 7000 series release is expected in September. The Ryzen 7000 is an x86 5nm CPU, which will likely be faster and more efficient than the Raptor Lake series. This advantage will boost AMD sales and likely take some business away from Intel in the gaming and graphic design segments.
What is the bull thesis for Intel?
The U.S. government wants to reduce reliance on China-based products, and the semiconductor history is no different. Last month, President Joe Biden signed a bill that allocates $52.7 billion in subsidies for the U.S. semiconductor sector. The U.S. government aims to invest in chip manufacturing companies, which could receive grant awards once the Commerce Department clears rules and regulations to underwrite projects. The legislation authorizes $200 billion for 10 years of scientific research after passing separate investment laws. This environment helps both Intel in particular and the semiconductor industry in general.
Intel also expects a rebound with its new Raptor Lake processors, which are expected to be released in October. The upcoming generation of processors is set to include a maximum of 24 cores and 32 threads on high-end Core i9 CPUs. They will have 35W, 65W and 125W power requirements.
Intel is also partnering with Brookfield Infrastructure Partners LP (BIP, Financial), a Canadian asset management group, to fund a $30 billion semiconductor fabrication plant to be set up in Arizona. Brookfield will invest $15 billion and retain a 49% stake in the plant. The plant should help Intel gain some ground back from competitors like Samsung and Taiwanese Semiconductor Manufacturing (TSM, Financial).
Takeaway
Intel has been around for a long time and has also seen its fair share of ups and downs. It can mount a comeback from the worst of times. However, investors should wait and see before investing their money in the stock. The company has been slowly losing market share and is also facing obstacles in the form of inflation and supply chain issues. As a result, Intel's stock price has been volatile and it is still unclear whether the company will be able to stage a comeback.
