Intel Corporation is the leading producer of x86-based microprocessor chips and platforms for client computing (around 50% of sales), data center (30–35%), internet of things (5%), memory solutions (5%), autonomous driving (2%), and AI-enabled programmable solutions (2%). Its products and solutions are widely used in notebook and desktop PCs, enterprise and cloud servers, communications infrastructure equipment, mobile phones and tablets, wireless and wired connectivity products, IoT, industrial, military, and automotive applications, among others.
For quite some time, Intel has had a dominant share in the processors of both PCs and servers. Yet, in recent years and with the new technologies, its dominant position is more than ever challenged.
For instance, in 2022, the PC business came under pressure from multiple factors including supply chain availability, shutdowns in China, and lower orders due to customer inventory reductions. The fast-growing data center business faced similar headwinds at the same time that Intel experienced execution flaws related to product design and the ramping of product offerings. Consequently, Intel’s credit ratings were cut by one notch in early 2023 by all three rating agencies. Intel’s execution has improved this year, particularly in 2H23 as 3Q23 saw sequential revenue growth in client, edge, foundry, and server revenue.
The company’s credit rating is stabilization and should improve given the company undertakes self- help measures and benefits from US government stimulus funds targeting the semiconductor industry. In addition, Intel reduced its common dividend earlier in the year, thus improving on its cash outlays. Intel is a core holding with a stable outlook. Risks include demand, share loss, and Intel’s ability to improve its manufacturing process.
Compared to those of US tech peers, Intel’s bond spreads are most comparable to single-A rated IBM, but trade with a spread than better rated companies such as Apple and Microsoft, but outperform the one of Oracle. There is no reason available that this triangular relationship is being challenged.