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Intel continues to have problems delivering new chips to customers. Despite internal denials, the chip giant appears to be further delaying its collaboration with Meteor Lake.

When an iconic American company dips, the market is tempted to buy the stock in hopes of eventually turning around. Investors have made this mistake for Intel (NASDAQ: INTC) for a decade. According to signs of the bearish chip giant, chip design problems will only increase.

more disturbing signs

While markets are focused on the approval of the CHIPS Act in the U.S. and signs that Intel could receive more government aid in Europe, the market still doesn't see the major problems facing the chip giant. In my opinion, Intel has never lacked the capital needed to invest in a modern manufacturing facility, nor has Intel lacked the technology and design processes to develop and manufacture modern chips on time and at scale.

Latest News TSMC's capacity expansion slowed as Intel's chip design problems worsened. According to Bang Tech Research, TSMC slows production expansion as Intel delays production of the once-expected Meteor Lake tGPU chipset from the originally planned 2 hours to 2024. Because of this shift from Intel, TSMC will reduce its capex growth in 2023 and into the period ahead.

As always, TSMC is highly reliant on the shift to 3nm and Apple (AAPL) makes M-series chips to replace Intel CPUs in Macs. While chip giants have stumbled time and time again in producing chips, a company focused on making consumer electronics has time and again outperformed Intel's designs.

Interestingly, Intel denied it came from Bang Technology, but investors are used to the rumors being true. As highlighted by The Verge, Meteor Lake is an important development for the chip giant, it's the first client processor on the new Intel 4 architecture, and it's likely to be fabricated using extreme ultraviolet lithography (EUV).

Source: Intel Investor Day 2022

After all, Intel just announced more execution issues with its Sapphire Rapids chips, putting the company even further behind AMD's (AMD) data center chips. CEO Pat Gelsinger Q2 2022 Earnings Call:

...we have some unique execution issues of our own, we maintain high quality standards at Sapphire Rapids, so we take another step, which is forecasting, which puts some inventory and reserve issues in front of us instead of High ASP new product revenue.

As Tom's Hardware details, Sapphire Rapids has had a long list of delays since the original plan was to ship server chips in 2021.

Source: Tom Hardware

By now, investors should be accustomed to delaying shipments of new chips to customers.

step back again

A little more than a week after Intel unleashed its second-quarter 2022 earnings bomb, investors can see how analysts' expectations falter over the next period.

Analysts currently expect Intel to earn $2.59 a share this year, before falling again to $2.07 next year. While those numbers look okay, analysts estimate that analysts still make big moves on a regular basis as company performance declines.

Source: Finding Alpha

At the beginning of 2021, analysts had originally forecast Intel's earnings per share of nearly $5 in 2024, and the average analyst estimate is now down more than 50% to just $2.30.

A big question for investors now is whether the numbers are credible. Another delay in Meteor Lake is sure to shatter those lowered EPS targets.

The reason the stock could face more pain ahead is that the stock is already trading in a range of 15 to 17 times forward earnings. Even though Intel stock has technically fallen to $35, it hasn't hit multi-year lows.

The company forecasts negative free cash flow, and another chip delay would present an entirely different risk to the business. Intel can't continue to pay huge dividends without cash flow rebounding anytime soon.

The chip giant now pays out $6 billion in annual dividends. The payout quickly becomes unsustainable, and a dividend cut is sure to cause the stock to fall again.

investment point of view

The main takeaway for investors is that Intel doesn't appear to have addressed any of the chip design issues that have caused major problems over the past few years. Even with government aid, the company no longer has any margin of safety to maintain its dividend while paying excessive capital expenditures to build new factories. Intel stock may look cheap at multi-year lows, but the stock has yet to bottom out.