Why Intel Growth Story May Be Hitting a Wall
June 26 - Intel (NASDAQ:INTC) could be heading into tougher terrain as geopolitical tensions and new export rules weigh heavily on the chipmaker's China-reliant business. While the company continues to promote its AI and foundry ambitions under new CEO Lip-Bu Tan, its fundamental outlook remains fragile amid a shifting regulatory landscape.
Taiwan's recent move to include Huawei and SMIC on its Strategic High-Tech Commodities Entity List marks another potential blow. The change effectively blocks the export of semiconductor products to firms without a special license, disrupting Intel's access to Huawei, a key PC customer in China. Huawei's MateBook lineup, powered by Intel Core Ultra processors, saw growing momentum in 2024, but future deliveries may now face delays or compliance hurdles.
Warning! GuruFocus has detected 7 Warning Signs with INTC.
Intel's dependence on China, where it derived about 29% of its 2024 revenue, primarily through its Client Computing Group (NASDAQ:CCG), exposes it to tightening U.S. and allied export controls. The CCG unit, which accounted for more than 60% of Intel's consolidated sales in Q1, remains a core earnings driver. But any shift in trade policy that restricts sales of mainstream PC chips, even indirectly, could weigh on results.
The chip maker is also dealing with wider execution issues. Its combativeness into AI servers through the Gaudi platform lags behind the shark competitor Nvidia (NASDAQ:NVDA), and the enhanced suspension of Falcon Shores chips highlights execution remnants. Meanwhile, the capital requirements of Intel Foundry are high, and it is not completely clear how the solution will be adopted by external customers long-term.
The action by Taiwan in July which evoked this move was an attempt to restrict its exports as part of the U.S attempt to restrict the Chinese access to advanced technologies. All these developments echo previous shocks, including the mid-2024 cancellation of Intel export licenses to Huawei that resulted in 30% plunges when its stock failed to meet results in China.
There is relatively no response in the market yet, as Intel shares remained around $20 in spite of such accumulating risks. But analysts caution that this complacency will not be sustained.
Having weak underlying principles, poor performance of its AI roadmap, and growing headwinds within the regulatory environment, the Intel stock might be subjected to the continuation of its decline.
This article first appeared on GuruFocus.
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