The stock has fallen from $50 at the beginning of this year to only $31 so far, with the stock price falling by more than 60%. Recently, Fed officials have supported another big rate hike in September to curb high inflation for 40 years, even at the cost of a recession, which has

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chip giant Intel 's stock price performance this year has been falling. The stock has fallen from $50 at the beginning of this year to only $31 so far, with the stock price falling by more than 60%. What is more than a singular situation for stocks to fall is that the Federal Reserve plans to raise interest rates again.

Recently, Fed officials have supported another big rate hike in September to curb high inflation for 40 years, even at the cost of a recession, which has heightened concerns about cyclical declines and put pressure on Intel's stock performance. The cyclical decline has already taken the company out of the personal computer recession.

The stock continues to fall – as inflation pressures appear to ease, the Fed is expected to turn to the Fed in 2023, and the stock has also failed to rebound as expected. Under CEO Pat Gelsinger, Intel's comeback plan has been repeatedly hit by execution obstacles and has still had a lot of work to be done in the past few quarters to regain investor confidence.

Even the latest positive news from Brookfield Asset Management (BAM) recent investment in Intel foundry failed to lift the stock out of its current downturn. In addition to the wide range of macro-adverse factors affecting Intel's operational capabilities, Pat Gaelsinger also acknowledged that Intel's "execution issues in areas such as product design, the slope of DCAI and AXG products" led to a larger fundamental accident than expected.

Although Intel has promised to re-speed up in the second half of the year, it is expected that the company's year-end performance will perform poorly in the near term. The reason is that the ongoing corrections are becoming more complex and increase macro uncertainty, consistent with management’s decision to adjust top- and bottom-line guidance downward.

below will analyze the key considerations for Intel's core business unit to evaluate its impact on the stock's near-term outlook.

Although many investors remain optimistic about the stock's long-term outlook, Intel returns to its foundry foundation, as well as the continued growth of key new products to accelerate penetration into the long-term data center and automotive markets, given the increased execution risks of its strategic transformation, the stock price performance may be further volatile in the short term.

Customer Computing Group ("CCG")

CCG is currently Intel's main personal computer sales department, which has the largest exposure to the consumer terminal market. The division currently accounts for more than 50% of Intel's integrated sales portfolio and, thanks to its scaled productivity over the past decade, has also given it the highest operating margins in its wider business.

Although Intel remains the market leader in core PC processors, its market share is gradually losing to its competitors, and is also coping with a wide market slowdown caused by weakening consumer confidence before rising recession risks.

After two years of performance boom driven by the epidemic, investors' concerns about the slowdown in the semiconductor cycle are now becoming a reality, and chip manufacturers collectively issued an alarm about slowing demand in the consumer terminal market. The accelerated decline in global PC shipments observed in the first half of this year indicates that the market is expected to shrink by 9.5% in 2022.

This is consistent with Intel's expectation that "TAM" will decrease by 10%, because "macro weakness, characterized by expanded consumer weakness." Intel observed poor performance in the second quarter of PC shipments to its largest customers, further confirming this bleak outlook.

These customers are now rapidly reducing inventory levels to cope with expected declines in consumer PC demand (an expected to fall 13.1% in 2022), and slowdown in corporate PC demand (a 7.2% in 2022), despite the relatively elasticity of the sector to short-term macro headwinds.

While peers such as AMD are looking to offset some of the recent weaknesses of consumer PCs through the resilience of enterprise demand, Intel's launch of the new "Raptor Lake" 13th-generation Intel core PC processor in the fall may be "too little to too late". The upgrade cycle not only missed the pandemic-driven surge in demand over the past two years, but the upcoming Raptor Lake project also directly matches the severity of the market slowdown.

Although Intel hopes to smooth sailing with the powerful upgrade cycle, the delay in launching Raptor Lake has the potential to further reduce competitors' market share, highlighting its poor internal execution capabilities, as more than 600 million outdated PCs are estimated to have adopted technology for four years or more.

Given the huge contribution of the CCG division to its consolidated sales and profits, this failed "catching-up game" is expected to have a serious impact on Intel's bottom-line performance in the coming months. This is consistent with the company's negative free cash flow guidance this year, which inadvertently points to severe valuation prospects in the short term.

data center and artificial intelligence group (“DCAI”)

In the upcoming periodic recession, strong long-term demand for data center processors has been the lifeline of the semiconductor industry.

As cloud computing becomes an increasingly critical factor in the enterprise sector to achieve operational and economic efficiency of , the demand for data center technology is expected to continue to grow in the next few years. Therefore, demand for data center processors is expected to grow at least 20% this year, in stark contrast to the slowdown in the consumer-centric segment caused by the weak macroeconomic .

In the long run, by the mid-10 years, the enterprise sector’s investment in cloud applications is expected to exceed US$800 billion. Therefore, this will increase the demand for auxiliary AI hardware such as data center chips, and the relevant TAMs are expected to grow to US$1.7 trillion at a CAGR of 43% by 2030.

While these statistics continue to support the resilient demand environment for superscale and chip manufacturers to cope with short-term macro uncertainty, it is ironic that Intel will lose further in the related long-term tailwind:

Speaking of DCAI, as we mentioned at Investor Day, in the coming years, we expect growth to be lower than the overall data center market as we rebuild our server portfolio. This is not a fact that we like, but a prediction we see. We focus on regaining performance and TCO leadership in all workloads and use cases from the enterprise to the cloud. Source: Intel's second quarter call financial report minutes

This once again highlights that Intel's inappropriate implementation of its strategic comeback plan will face greater tests. Major competitor AMD continues to break Intel's market leadership in the data center server processor space with next-generation products with a wide range of use cases for cloud computing, communication infrastructure and telecommunications deployments.

AMD, the fax chip manufacturer, is also expected to launch the fifth generation of "Turin" EPYC server processor in 2024, which is aimed at general-purpose and cloud-optimized applications. Based on the 4nm and 3nm manufacturing processes, AMD's Turin EPYC processor is expected to unleash some of the best-in-class performance capabilities. Meanwhile, Intel has delayed the launch of its competitive product, the next-generation "Sapphire Rapids" Xeon server processor, which could further lose market share for emerging competitors like AMD:

About DCAI, as I said in the official comment, we are disappointed. Some of them are macro-driven…but as we said, we have some unique execution issues, we maintain a high quality standard on sapphire rapids, so we took another step, which is a prediction to put some inventory and reserve issues in front of us rather than high ASP new product revenue. Source: Intel Q2 Telephone Financial Report Meeting minutes

However, it is worth highlighting that, despite this, Intel has continued to establish long-term partnerships with key hyperscale enterprises including Meta and AWS (AMZN) in recent quarters, paving the way for ongoing demand to support long-term growth in the field.

Intel recently acquired Granulate, a "real-time continuous optimization software developer based on Israeli ", which also enables it to provide end-to-end solutions for the long term. The provision of software not only drives higher profit margin sales, but also hopes to promote more cross-selling opportunities for complementary hardware, support further improvements in the deployment of new data center products, and increase long-term market share revenue.

In addition to Intel's raid opportunities in the field of artificial intelligence and data centers, the company continues to make favorable progress in providing programmable solutions by continuously improving its "flagship Agilex FPGA" processor. As mentioned in our previous report, field programmable gate arrays (“FPGAs”) are “programmable circuits that can adapt to the rapidly changing requirements of modern technology”:

Because of its versatility, a single FGPA may integrate discrete components. Specifically, the circuit can be programmed and configured to facilitate specific functions and reprogrammed when changes are required. FGPA is widely used in emerging technologies such as cloud data centers and communication infrastructure applications, taking into account its adaptive features and the ability to achieve low-latency AI acceleration. With the continuous adoption of emerging technologies, the global FPGA market is expected to grow at a compound annual growth rate of 8.5% over the next five years.

Therefore, Intel has a unique position in the global 5G enterprise market to capture growing demand, and the related opportunities are expected to grow rapidly to $10 billion at a five-year compound annual growth rate of 28.5%, a favorable tailwind that partially offsets the near-term execution disaster of the data center server processor prospects.

Network and Edge Groups ("NEX")

In addition to FPGA, NEX is one of the few areas where Intel has made positive progress. In the second quarter, the division had revenues of more than $2.3 billion ( up 11% year-on-year; 1% quarter-on-quarter), setting a new record, driven by strong demand for 5G and Ethernet, consistent with market observations outlined in the previous section.

With new products such as Intel's latest infrastructure processing unit ("IPU") "Mount Evans" developed in collaboration with Google (GOOG/GOOGL), this momentum is expected to continue until 2023, and the suppressed demand comes from well-known super-scale enterprises. While Intel's ability to leverage data center server processor demand before accelerating cloud computing demand is lower than expected, its NEX product—similar to FPGAs—is expected to be a positive offset.

Mount Evans IPU is essentially a data processing unit (“DPU”) capable of “mobile, process, secure and manage” workloads across data centers. Mount Evans IPU has "multi-host adapter capability [connectable] up to four Intel Xeon CPUs", and even the most powerful DPU on the market, such as Marvell (MRVL) LiquidIO server adapter and OCTEON DPU, can compete with it.

is similar to Marvell's infrastructure processor products, Intel's Mount Evans IPU also comes with a comprehensive software development kit ("SDK"), including the "Infrastructure Programmer Development Kit" ("IPDK"), providing customers with seamless and scalable end-to-end solutions.

Accelerated Computing Systems and Graphics Group (“AXG”)

AXG segment mainly includes sales related to GPUs deployed in a wide range of use cases for PCs, data centers and high performance computing (“HPC”)/supercomputers. The AXG department is also responsible for developing blockchain accelerators as well as other custom accelerators to capitalize on the needs of emerging technologies.

is similar to the macro resistance and insufficient execution observed in CCG, and AXG is “not expected to reach (its) GPU unit targets” this year. In addition to the increased risk of increased inventory, the sector’s bottom line is also squeezed by increased deployment costs and rising product roadmap.

Specifically, Intel ARC "Alchemist" gaming GPU growth is being hampered by slowing global PC shipments and subsequent declines in OEM inventory levels ahead of a periodic recession. The delayed launch of next-generation Intel Arc A5 and A7 desktop graphics cards deployed later this quarter also coincides with a period of accelerated decline in demand for GPU among the wider peer group, adding another blow to the poor performance in the field.

Meanwhile, Intel's market leadership in high-performance computers has been overshadowed by the rapid decline in market share of its rival AMD.The "AMD Institute MI200" series of data center GPU processors powered by AMD's latest CDNA 2 architecture are now found in "the world's 10 largest supercomputers and play a key role in powering some of the world's most powerful supercomputers", which has attracted the attention of industry leader Intel.

hopes Intel's products, the latest "Arctic Sound-M" data center GPU, will help it regain its foothold, which has been put into production and delivered to customers this year. As a “multi-purpose GPU for data center workloads” that addresses the widespread use of “media streaming and gaming, to AI visual interference and virtual desktops”, Arctic Sound-M cards will take advantage of the rapidly growing demand brought by emerging technology trends.

Intel Foundry Services (“IFS”)

Gelsinger faces its biggest challenge after taking office as Intel CEO is the introduction of “IDM 2.0”, which aims to bring the company back to its founding roots and leverage the benefits of vertical integration with chips. Under IDM 2.0, Intel seeks to collaborate with "third-party foundries and include the manufacturing of a range of modular tiles in advanced process technologies, including core products for Intel's customer and data center computing products starting in 2023".

This includes the long-awaited "Meteor Lake" CPU, the successor to the Raptor Lake CPU discussed in the previous section, and is expected to utilize Intel's 7nm process and the 5nm process from industry partner TSMC (TSM) to be deployed starting in 2023.

In addition to the costs and innovation benefits of IFS continued to grow under IDM 2.0, we also believe that this strategy is a cautious way to share profits between fable chip competitors such as AMD and Nvidia: This strategic expansion of

comes as global digitalization in various industries continues to accelerate at an unprecedented rate, which leads to an increasingly widening difference between semiconductor demand and supply. Foundry is expected to grow into a $100 billion market over the next five years, and much of this projected growth will be driven by the demand for new computing technologies such as artificial intelligence, cloud, 5G and edge computing . The Chip Law, which was recently signed into law by President Biden and , also heralds Intel's new strategy. Under the Chip Act, Intel seeks to benefit from $52 billion in government support, which aims to further expand U.S. chip production capabilities.

However, in line with IFS's nominal contribution to Intel's combined sales portfolio, the efforts will still take years to gradually scale up and have a significant impact on the company's short-term performance. Although we remain optimistic about IDM 2.0 in helping Intel regain market share and participate in profit sharing for competitors, the efforts are still a long way from achieving results, highlighting the rise in execution risks in the future.

Mobileye

Mobileye has always been the star of Intel company . The early decision of chipmakers to acquire Mobileye was a foresight, giving it a pioneering edge in participating in accelerating the global adoption of advanced driver assistance systems (“ADAS”) and autonomous driving technologies that are quickly approaching the inflection point:

The global autonomous driving technology market is expected to grow at a CAGR of 14% to 28.5% over the next five years, bringing strong momentum to Mobileye. Much of the growth will be dominated by the robotaxi sector, which is expected to grow rapidly at a compound annual growth rate of 60.7% to 120.5% by 2025.

, a subsidiary, has not disappointed the outside world, and its operating profit margin has been above 40% and continues to grow. Mobileye has expanded its self-driving car testing program from its headquarters in Israel to some of the world's busiest and most complex driving environments, including New York City, Detroit , Paris, Munich and Shanghai.

Despite favorable fundamental progress by the subsidiary, the division's contribution to Intel's overall performance remains insignificant. Instead, the core focus now is Intel's upcoming Mobileye IPO program later this year, which is expected to bring new value to shareholders.With TAMs for automotive chips expected to exceed $100 billion by 2030, Mobileye will take advantage of high growth opportunities that guarantee higher valuations in the long run as its technology deployment increases.

Conclusion

Based on the above analysis, Intel still has a lot of work to do before achieving optimistic expectations for its long-term prospects. Specifically, CCG, DCAI and AGX shortages will take some time to recover from the given additional pressure from short-term macro headwinds, which will slow down the climbing trajectory of each section. The biggest downside risk for

is that these three sectors also occupy most of Intel's basic performance, indicating that its near-term valuation outlook will continue to face pressure. Meanwhile, segments that take advantage of current market opportunities, including NEX, IFS and Mobileye, are still in their early stages of growth, and it will take some time to achieve growth before making any meaningful contribution to the company's earnings.

At present, Intel still has a lot of work to do to restore its credibility and investor confidence in the company's ability to maintain market leadership.