Intel Restructuring Analysis

Firm Description[pic 1][pic 2][pic 3][pic 4]

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Business

Intel Corporation engages in the design and manufacture of products and technologies that power the cloud and connected worldwide. The company offers computing, networking, data storage, and communications solutions to a set of customers spanning multiple industries. It offers platform products that incorporate various components and technologies, including a microprocessor and chipset, a system-on-chip (SoC), or a multi-chip package. The company operates through Client Computing Group (CCG); Data Center Group (DCG) and Non-Volatile Memory Solutions Group (NSG). The company sells its products primarily to original equipment manufacturers (OEMs) and original design manufacturers (ODMs). ODMs provide design and manufacturing services to branded and unbranded private-label resellers. In addition, its customers include other manufacturers and service providers, such as industrial and communication equipment manufacturers and cloud service providers, who buy its products through distributor, reseller, retail, and OEM channels worldwide.

Main products

Client Computing Group: responsible for all aspects of the client computing continuum, which includes platforms and connectivity technologies that are incorporated in a range of consumer and commercial products. The Intel Core processor family and the Intel Quark, Intel Atom, Intel Celeron, Intel Pentium, Intel Xeon, Intel Xeon Phi, and Intel Titanium trademarks make up the company’s processor brands

Data Center Group: This segment develops platforms for compute, storage, and network functions. Customers include enterprise and government, as well as cloud and communications service providers. In 2017, the company launched the Intel Xeon Scalable processors.

Non-Volatile Memory Solutions Group: This segment offers Intel Optane and Intel 3D NAND technologies, which drive innovation in SSDs (solid-status drive). In 2017, the company expanded its portfolio by delivering products based on Intel Optane technology, specifically Intel Optane memory, a PC system acceleration module, and highly responsive SSDs for both the data center and enthusiast markets.

Internet of Things Group: Solutions for retail, automotive, industrial and video surveillance, along with a range of other embedded applications. The Internet of Things is transforming the way the company lives, connects, works, creates, and conducts business—from smart cities, to manufacturing.

History

The company was established in 1968 by Robert N. Noyce, cofounder of the integrated circuit, and Gordon E. Moore, to make semiconductor memory more practical and affordable. In late 1969, when a Japanese calculator manufacturer, Busicom, asked the new company to design 12 custom chips for one of its products, the innovative Intel team came up with a groundbreaking solution: one chip that could do the work of 12. In 1971, Intel opens up its capital with an IPO at 23.50$ a share. In 1985 Intel introduced its next-generation Intel386 microprocessor, and in 1993 the company’s focus on R&D and manufacturing expertise resulted in the renowned Pentium microprocessor, whose descendants power performance-intensive applications today. Intel’s groundbreaking achievements continue in the new century.Intel’s new 45nm processor technology is now in production for more than 15 products in its next generation family of computer chips. With more than 400 million transistors for dual-core processors and more than 800 million for quad-core, these next generation of Intel Core 2 chips provide greater performance, power-management capabilities, higher core speeds, and larger caches for desktop, mobile, workstation, and enterprise computers.

Geographical Locations

Headquartered in the heart of the Silicon Valley, precisely in Santa Clara in the United States, Intel is present with offices in 63 countries across the globe. Intel’s manufacturing plants are operating in China, the United States, Israel and Ireland. Approximately 75% of Intel’s production is realized in the United States, according to the company’s website.

Investment opportunities and News

Intel states a clear strategy within their 2017 annual report: the company wants to prioritize its R&D efforts on its fastest growing segment: the Internet of Things. With an annual growth rate of over 15% in the last five years, these activities will likely be fueling consistent growth in revenues on a short and medium term basis. McKinsey recently published a report on this trillion dollar industry, set to become a major segment for any semiconductor manufacturer. Another major aspect in Intel’s strategy is their willingness to pursue R&D efforts aiming to augment the density of their chips. As chips become smaller and smaller, the shrinking in costs of material is an important opportunity for the firm. As stated in their 2017 report,  it represents “economic benefits as we are able to either reduce a chip’s cost as we shrink its size, or increase functionality and performance of a chip while maintaining the same cost”. A KPMG report  also underlines the opportunities lying in Artificial Intelligence (AI) for Semiconductor companies, which are “betting heavily on the AI revolution and the connected age, anticipating the role their industry will play in creating chips and producing enough memory and computing power to support both”. Intel has clearly significant opportunities to seize, and as a leader in the semiconductor industry, should be able to take the most of them.

Furthermore, the International Monetary Fund estimates continued growth for both world and developed economies till 2022 at least.

Methodology and Assumptions[pic 6]

Methodology: APV approach [pic 7]

We must compute Intel’s financial value before being able to work on the restructuring. We chose to proceed with the APV approach for our valuation, using the following equation. With this method, firms trade-off the tax-benefits of debt against bankruptcy costs to maximize firm value, what seems to be relevant to this particular project.[pic 8]