Intel Crosses the Rubicon

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In January 49 B.C., Roman general Julius Caesar made a decision that shaped Western civilization for centuries. Caesar defied an order from the Roman Senate and brought his armies across the Rubicon River.

Caesar and his army had been sitting around the northern province of Gaul while allowing his enemies the chance to maintain power in Rome. The decision to bring that army across the river and defy the Senate would push the Roman Republic into a state of civil war.

Today, the term “crossing the Rubicon” still means to take action so decisively that there can be no turning back.

The term has applied to many companies and entrepreneurs over the years as they reach a point of no return in their action plans. For example, “The Godfather” and “Apocalypse Now” director Francis Ford Coppola named his wine brand “Rubicon” after bankrolling and nearly bankrupting himself while making the latter film.

Today, another company appears to be “crossing the Rubicon” with its decisive effort to take on some of the world’s fastest-growing semiconductor manufacturers.

One Year In

In February 2021, Pat Gelsinger took over as CEO of Intel Corp.

At the time, there was quite a bit of excitement about Gelsinger, who has an engineering background, assuming this executive role. However, the last year has been overshadowed by COVID-19, the ongoing semiconductor shortage, and a lackluster price trend for Intel stock (INTC).

Over the last few months, the stock has largely been range-bound between $53 and $57 per share. As the company approaches earnings this week and its investor meeting in November, the story will center around Intel’s ability to improve its technological outlook. Investors have been neither bearish nor bullish in recent months. Instead, the chatter still focuses on Intel’s loss of Apple as a buyer of chips for the MacBook product line. Apple had decided it would manufacture its chips to limit market exposure to the supply chain crunch we are witnessing now.

Intel had provided chips for Mac products since 2005. However, Apple not only reduced its outside dependency on Intel, but also helped boost its margins by shifting to chips that had similar processing power to those used in iPads and iPhones.

Still, Gelsinger has been aggressive in outlining a vision for Intel. In response, the company’s competitors Advanced Micro Devices (AMD) and Nvidia (NVDA) have accelerated their processing power and reach around the globe.

But Gelsinger believes that Intel can reestablish dominance in the industry by 2024. Earlier this year, the company announced Intel Foundry Services to compete directly against AMD, Nvidia, Samsung, and Taiwan Semiconductor Manufacturing Company (TSM). This program would help the company reestablish its longer-term goals of attracting new engineering talent, boosting its processing speeds, and building market share when competitors face unique pressures.

Gelsinger threw down the gauntlet earlier this year, predicting that Intel would have the fastest processors on the planet. In many ways, his challenge to Intel engineers mirrored those laid out by Apple founder Steve Jobs as his company boldly ventured into new territory against stiff competition.

Can Intel Regain Its Luster?

As we approach earnings, Intel anticipates revenue to come in around $19.1 billion. That would be about $1 billion year-over-year in growth, even without Apple’s patronage. The question, right now, is whether the company will experience stronger margin growth and can protect the market share in the legacy PC space while expanding into new high-growth sectors like artificial intelligence, autonomous vehicles, and graphics processing units (GPUs).

Intel is currently the largest semiconductor manufacturer on the planet and benefits from this acceleration in new industries.

The company appears to have given up hope in the short-term to try to win back Apple’s business. So, instead of waiting for Apple to pick up the phone, the company is now helping to power Windows-based machines.

That’s right. Instead of working with Apple, the world’s largest publicly traded technology company, it is now working with its rival Microsoft.

Intel must now prove it can compete against smaller rivals like AMD and Nvidia in chip design, power, and functionality. This will be its first major test as it aims to build a future of dominance.

Looking Ahead

This week, we’re paying very close attention to Intel’s forward guidance and projections for 2022. The company has already quickly expanded its business with Amazon, Qualcomm, and the U.S. Department of Defense. We will look to see how the company plans to compete against Apple and whether it might one day push the company to abandon its own chip designs.

For now, however, Intel is in a battle with Apple by aligning with Microsoft. It will be a fascinating story moving forward.

For now, we are adding Intel (INTC) to our watch list. The company is currently in the Yellow Zone of Tradesmith Finance and has been locked in sideways momentum for a few weeks. Once this stock returns to the “buy zone,” we will enter a position.

We’ll be back to discuss earnings season and other trades in the days ahead.