Intel Resurgence
Intel was the US and world leader in making the microprocessor chips that run computers and virtually everything else these days. They gave away that position in recent years to focus on short term profitability. Part of the problem was turning down the chance to design and produce the chips that went into iPhones and then every other smartphone in the world. While computers require hundreds of millions of chips, smartphones require billions. Samsung and Taiwan Semiconductor have taken over the lead in producing the most advanced chips and in the case of Taiwan Semiconductor turning out chips designed by their customers. Today we are seeing the beginning of the Intel resurgence. By paying attention an option trader will be able to score trading profits.
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Chip Shortages and Supply Chain Concerns
American auto companies have had to cut back or shut down assembly lines because they cannot get enough of the microprocessor chips needed for their vehicles. The pandemic has exposed a critical risk to American economic and military security. Asian suppliers and especially China control too much of what makes America run. These things include rare earth minerals and lithium battery production but also computer chips. Congress has passed a billion to help bring chip production back to factories (foundries) in America. Both Taiwan Semiconductor and Samsung are putting more than $10 billion into new facilities in the USA. Intel is betting more than $20 billion each on new facilities in Ohio near Ohio State University and near its current facilities in Arizona. In addition it purchased Tower Semiconductor for $5.4 billion. This immediately gives Intel chip foundry facilities in several nations (not in China).
Intel Chip Making Expansion
Intel’s fall from first place in chip making came with a change in management. Andy Grove retired as chairman of the board and Paul Otellini took charge. The new direction maintained short term profitability but resulted in the world leading chip maker falling to third place. The position the US finds itself in where China controls or can threaten in the case of Taiwan too much critical infrastructure has presented Intel with a unique opportunity. Intel has brought back one of Mr. Grove protégées, Patrick Gelsinger. Mr. Gelsinger worked at Intel for 30 years and was pushed out when Otellini took charge. His return is reminiscent of Steve Jobs being pushed out of Apple and then returning to start taking Apple from its then-dismal state to a tech leader with a current market cap of $2.74 Trillion. Intel’s current plans are to ramp up chip production in the USA and in Europe, produce chips for other companies, and remedy the issue of US reliance of foreign chip production.
Investing In or Trading Intel
Intel’s share price is down as some see the huge investments ahead as a drag on profits and not likely to produce income for years. Investors who are willing to stay the course will likely be rewarded for putting money into Intel today. Option traders have two opportunities. One is simply to pay attention to the news as Intel follows up with its plans for expansion. We would expect to see improved performance under Mr. Gelsinger and that should provide trading opportunities over the short term. For the longer term, one might consider LEAPs and a synthetic stock strategy. With this approach a trader will be able to benefit from longer term Intel growth while investing substantially less. The potential for Intel resurgence makes us think of two companies that missed the boat on new technological applications. IBM missed out on desktop computing until it was too late but had no one to light the way to resurgence. Apple had Steve Jobs who knew the company and the business and came back to make a spectacular difference. It is entirely possible that we could see a similar story unfolding with Mr. Gelsinger’s return to Intel at the same time that the US intends to bring critical technology and production back onshore.
