GS is just plain wrong....the tip off is that they combined the semicondutor manufacturers and the semiconductor manufacturing equipment suppliers in the same rationale.
The equipment guys are still looking into a good couple or years. That is to support the chip manufacturers who still see significant growth. The cycles are different. When the equipment guy decline, the chip guys often follow two years later. We always used to say that when the chip guys went flat, the equipment guys went to zero.
My post pre earnings:
From the 4th qtr CC Paul Otillini: “As we approach our 22-nanometer transition, we are increasing our investments in manufacturing to capture what we believe is a significant opportunity for growth. Stacy will walk you through more details in just in a moment, but in short the market opportunities for our 22-nanometer products are outstanding. As a result, we are growing from the model of three high volume leading-edge manufacturing fabs to four. Our 22-nanometer process will be the foundation for growing PC and server segments, as well as a broad family of Atom-based SoCs, serving smartphones, tablets, smart TVs, and other embedded devices.”
From the 4th qtr CC Stacy Smith:
“In support of expected strong unit growth in our core businesses and the movement of graphics transistors to our leading edge process technology, we're forecasting an increase in capital spending to $9 billion as we build and equip an incremental high volume manufacturing factory at 22-nanometer.”
From the 1st qtr CC Paul Otillini:
“We remain on track to begin production on our 22-nanometer silicon process technology by the end of this year. This revolutionary technology will further distance Intel from the competition across all segments of computing.” “Secondly, we are increasing our forecast for CapEx spending this year. This reflects the widening of our process technology lead and the incremental opportunity that advantage will provide our business. The increased CapEx is focused on both 22- and 14-nanometer capabilities.” [14nm?!! At 22nm 10 million transistors can be made in the area of the period at the end of this sentence.]
Intel has three manufacturing facilities that are capable of $12.8 bil last qtr. These factories are running 32nm process now. The plan is to move the technology to 22nm. That simple fact means that Intel could build the same number of chips that they build today in two 22nm facilities rather than three 32nm factories. ON TOP OF THAT INTEL PLANS TO BUILD A COMPLETELY NEW 22nm FACILITY! Basically they are planning to double their capacity in the next two years. They must have a plan to also double the business in the foreseeable future (~3-4years). That would be a 15% growth rate for the next 4-5 years.
My opinion is that Intel will fill this capacity by adding functions to their CPU chips for PCs such as adding graphics processors on the main chip and they will participate in the foundry business to indirectly participate in the mobile business. Analysts have been pinging on Intel for missing the mobile business.
Intel could add $10 bill in sales short term by engaging BRCM, MRVL, QCOM, and AAPL on their foundry business. These four companies could benefit greatly from the reduced power and increased speed that a 22nm process would give them.
The bottom line is that Intel intends to increase capacity through process shrinks AND new building to the extent of 100%. These guys are too smart to do this unless they know exactly what lies ahead.
Since the stock has a reasonable value of ~$50 today and nearly $100 if twice the sales, the Jan 2013 35 call LEAPs at about $.20 seem like the buy of a lifetime. That option give 20 months and six earnings reports before expiration. Whatever the company’s plan for all that production capacity should become obvious long before then.