Need your help. I listened to the earnings call and was alarmed by CFO comments that business model is built on 30% of gross revenue going into CapEx. Here is why. I build a little model and if you put in any reasonable assumptions of TAM, share and lower ASPs and then you estimate costs but penalize yourself for the under utilization charges and the pre PRQ waste, I find that there is no way the company can generate enough margin dollars to fund $20 Billion in Cap Ex the CFO says for what you need to ramp IFS fabs. In part the problem includes the fact the co is trying to launch so many nodes in such a short period of time. It sounds good to try and catch up , but it generates a cost hump that is deadly. I am sure the CFO has asked the team to model this all out. Can you tell me, how can there ever even work? Serious question.
6 replies (most recent on top)
I picked up a clue from the earnings call transcript. The CFO said they will try to manage costs by building out the fab shells but then ramp the spending inside as the demand shows up. Now you can either look at that and say the CFO wants to be sure there is enough capacity to support all demand just in time... (as he alluded to on the transcript)... or, you might surmise Intel is already struggling to fund the expansion plans and has to tamp on the brakes.
If you are investing in property around the Ohio fab, I wouldn't go to aggressive. That facility may end up sitting for a while and I wouldn't be surprised at all if it turns into a tumble weed lot like Folsom.
Your math looks right. This is what is so confounding. I mean, if we can do the math then why can't the board? If they have already seen these numbers, how on earth can they just keep rubber stamping the CEOs plans?
This was mentioned 2 years ago:
Gross margin of 52% of 74bln of revenue is 38.5 bln gross profit. You take out 6 bln SG&A expenses (this is about what they have been spending the last couple of years), 26.5 billion of capital expenditures and 15 billion of R&D you end up burning 9 billion dollars of cash for the year. If they actually pay their dividend, that will be another 5.5 billion for a total of about 14.5 billion dollars of cash used up. That is a very risky situation to be in. One hears about startups burning cash but not in the billions.
You have to ask Intel shareholders who have been used to a very reliable cash generating business that buys back a lot of shares, and pays nice dividends to use up 9 billion of their money in an year in the hopes that things turn around some time in the future.
I am not sure what exactly constitutes betting the farm, but they are getting into some very risky territory.
Probably modeled in an assumption of a CHIPS act check
If you build it, they will come.
Hollywood 101.
Who needs finance?