Intel stock rallies as CEO Gelsinger announces aggressive manufacturing buildout

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With Gelsinger as new CEO, Intel gets an engineer who can bring back innovation


Intel Corp.’s stock surged late Tuesday as the chip maker announced aggressive plans to expand its manufacturing capacity to take back its leadership position in the industry .

Intel
INTC,
-3.28%

shares surged more than 6% after hours, following a 3.3% decline in the regular session to close at $63.48.

On a conference call, newly installed Chief Executive Pat Gelsinger, who had spent decades at Intel focused on the engineering side of the business before moving onto Chief Operating Officer at EMC Corp. and CEO of VMware Inc.
VMW,
-0.88%
,
laid out an ambitious roadmap to bounce back from recent manufacturing problems that surfaced last year.

Gelsinger said Intel was investing $20 billion in a “major factory buildout” at its Octotillo, Ariz. facility, and plans to announce other expansion plans this year. Last year, Intel spent $14.3 billion on capital expenditures. While Intel is likely to benefit from the government’s push to re-establish U.S.-based chip manufacturing, Gelsinger said Intel is not factoring that into its plans.

“This is the Intel strategy period, full stop,” Gelsinger said on the call.

Gelsinger said Intel would not only manufacture a majority of its products in-house but it would also expand its use of third-party fabricators and lease other fabs.

“It’s a surprising and bold new manufacturing move,” Maribel Lopez, principal analyst at Lopez Research, told MarketWatch. “The challenge is short-term execution, but Gelsinger and team seem to have it under control.”

“What’s most exciting is to see Intel leadership express that the company is willing to do what it takes to compete,” Lopez said.

Also, Intel forecast revenue of $76.5 billion and adjusted earnings of $4.55 a share for 2021, after not providing a full-year outlook in its previous earnings report. Analysts surveyed by FactSet expect an average of $76.64 billion and adjusted earnings of $4.78 a share.

Back in January, Intel’s stock fell under pressure as Gelsinger walked back expectations that the company would rely more on third-party manufacturers to make its chips. A week before that, Intel had announced that Gelsinger would be taking over for Bob Swan, the former financial chief who had helmed Intel for more than two years.

Intel’s manufacturing problems came to light back in July, when it announced it would be delaying its next-gen 7-nanometer chips until at least late 2022 because of a “defect” in its manufacturing process.

In chip parlance, nanometers, or nm, refers to the size of the transistors that go on a computer chip, with the general rule being that smaller transistors are faster and more efficient in using power. Rival Advanced Micro Devices Inc.
AMD,
-2.39%

started rolling out its 7-nm chip in the summer of 2019.

Prior to the presentation Tuesday, analysts had stated that Intel needed to address how it plans to recapture its manufacturing leadership in the chip world, and address computing workloads that are migrating away from the x86 chip architectures it pioneered.

Citi Research analyst Christopher Danley, who has a neutral rating on Intel, said he expects Gelsinger will likely erase fears of a “doomsday” scenario where Intel’s 80% market share drops to 50% at the hands of competitors like AMD.

“While it is no guarantee Intel can catch its competitors, much less restore this leadership, we believe Intel hired the leader that gives the company the best chance to do so,” Cowen analyst Matthew Ramsay, who has an outperform rating on Intel, said in a note.

Over the past 12 months, Intel shares are up 28%, while the PHLX Semiconductor Index
SOX,
-2.71%

has surged 123% over that period. Meanwhile, the S&P 500 index
SPX,
-0.76%

gained 75%, and the Nasdaq Composite Index
COMP,
-1.12%

gained 93% recovering from the huge COVID-19 pandemic drop that plagued markets a year ago.



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