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Monday, June 13, 2016

Intel Corp. Stock -- Keep or Sell Off?

Note: This is meant to be a continuously updated article. I encourage you to submit comments via the comment link below the article, or provide input to the editors via our mailing list.

Many of us own Intel Corp. stock which we acquired over the years, via the employee purchase program as well as through annual RSU awards. For those of us who were laid off or forced to retire from Intel Corp. under duress, the question of whether to keep the stock or sell our shares is complex. Emotionally, many of us feel that we do not want to continue and support a company that practices widespread age discrimination even if the dividends that our stock produces is not the worst on the market. There is also the question whether the current corporate management team lead by Brian Krzanich (BK) and the Board of Directors lead by Andy Bryant, who made crucial mistakes over a long period of time, are trustworthy and are capable of leading the company to a new growth cycle that will result in a higher stock valuation.

During the tenure of BK at the company helm I observed a major investment in PR campaigns and a very large number of personal appearances that BK conducted in public events and trade shows. He apparently, seems to be trying hard to emulate the presentation style that Steve Jobs was so famous for; however, besides playing with a lot of toys on the stage, he does not seem to have a clear direction for leading the company into a renewed growth cycle, or even keep the company afloat.

When an Organizational Health Survey conducted among company employees after the second year of BK's tenure as CEO returns an indication that only 60% of respondents believe that there is a environment of trust inside the company, the main question that comes to mind is why?

As to Andy Bryant, he has been in his position much longer than BK and without a doubt he carries responsibility for many of the bad corporate decisions that were approved by the Board of Directors. The pathetic behavior and lack of supervision that the Board of Directors exercised over the last few years is a clear indication of "rubber stamp" pattern. We need to ask ourselves, if the Board consists of people who actually are able to understand what Intel management is doing and if they have enough integrity to scrutinize the actions of the corporate management team with BK as the CEO.

Coming back to the main subject of this article: should we keep our stock shares with the belief that Intel Corp. will soon recover and holding on to our shares would pay off? Will the latest publicity stunts, accompanied by the latest wave of personnel layoffs, convince innocent investors or educated fund managers that Intel Corp. management is taking the company into a rosy future because they know something that we do not?

A recent article on The Motley Fool web site is raising the question: Who Will Buy Intel Corporation's $1,700 Desktop CPUs? Another current article entitled Intel’s Broadwell-E should not have been released, presents additional doubts about the way Intel Corp. management is seeking to increase revenue. Collectively, these articles do not increase my confidence in INTC and neither does a new announcement that Intel Corp. will act as an alternative source, supplying RF modems for  Apple, Inc. new smart phones.

Someone needs to ask why Qualcomm, Inc. does not keep fighting to maintain its position as a major supplier for smart phone RF modems. A possible answer would be that the profit margins in RF modems are generally very slim and Apple is probably a very tough customer. Most Intel Corp. RF modems are manufactured using an old, however stable, 28nm mixed-mode TSMC manufacturing process which is outsourced to offshore factories. The processors in these modem typically utilize IP licensed from ARM LTD and the license fees eat a significant portion of the profit margins off the bat. My assessment is that other than the temporary fanfare centered around the Apple name recognition, the viability of this deal may not bring significant net revenue, or even break even.

Hopefully, other articles, like this one: Intel x86s hide another CPU that can take over your machine (you can't audit it), will not create a major public backlash against Intel Corp. products, by convincing hardware vendors to choose non-Intel Architecture based chips, in their platforms. The security considerations derived from facts mentioned in the quoted article, are however, quite significant and cannot be ignored. Sadly, such security issues affect both the Personal Computer market, as well as the Server market.

It is unfortunate that the only believable course that Intel Corp. management is charting out at this point, is that company share of the Server Market will continue to grow at a constant rate. Will this growth compensate for lack of strategic vision and poor factory yields? Tell me something that I could believe in.

Please add your comments and send your input to our editors via email.

Thank you for your cooperation.

--Dr. Flywheel



4 comments :

  1. There are tex considerations in selling stock. Having been given a package and "retired" after 17 yers with intel, my "income" this year will be higher than last year and next year ($0). However, the RSUs which just vested are currently at their cost basis so you can sell those now without a big tax hit. Hold onto the older stuff with lower cost basis until next year. Of source it is a gamble if you think Intel is making bad decisions.

    ReplyDelete
  2. Good summary of the leadership.
    I took the package last year, still wondering what to do with 34 years worth of stock....

    ReplyDelete
  3. Impacted last year. Nearly all RSUs are now long term. I've sold everything in the last 2 weeks when it hit $33. Will most likely liquidate the rest this year for 3 reasons:-
    (1) Tax impact is less this year than last year
    (2) By end of this year I'll actually HAVE to pay a fee to keep the UBS account open.
    (3) Intel has a terrible long term outlook, I just don't have faith that there is growth to ensure the stock price recovers. Share buybacks aren't sufficient. 10nm needs to work. And Intel has to find another business to fill its fabs since management wants foundry customers to adapt to Intel instead of the other way around???!!! If fabs are not filled, the economics of Moore's Law essentially fails. I brought this up in 2014 but the folks who drank the Intel Kool-Aid then didn't believe me.

    ReplyDelete
  4. In theory, with all the layoffs/head count reduction, Intel earnings should start to look good next year and hopefully, the better earnings should propel the stock higher. Other than that, there is no real growth and the company has demonstrated multiple times that it cannot enter new markets and keeps making bad decisions (e.g. McAfee).

    For those holding the stock in the UBS account, the first thing you do is go open a brokerage account. A lot of the brokers (e.g. Ameritrade) have a sign up bonus when you transfer certain amount of funds to their new accounts.

    And then go read up on options and sell longer term covered calls (e.g. Jan 2018 $37 strike price) that will give you around $2.25 per share. That is not only your downside cushion but if the shares remain flat, that is your gain. This will nicely augment your dividend income. Obviously, as you hold the stock for long term, the dividend is taxed at a low rate.

    ReplyDelete

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