In today’s post, we will review the assets on Intel’s Balance Sheet. Next week we will focus on their liabilities. God willing.
ASSETS: A resource that can produce a financial benefit in the future.
For example, a stock is an asset because it can be sold in the future for a potential profit.
Intel’s Balance Sheet can be found on page 78 of their Annual Report.
Link: Annual Report
A Balance Sheet is a financial report that shows:
1. What a company owns;
2. How much money it owes; and
3. How much the owners of the company invested into the business.
The first section on a company’s Balance Sheet is usually its Current Assets.
CURRENT ASSETS: An asset that can be converted into cash within one year.
Inventory is a current asset because companies expect to sell and receive cash from the sale of their inventory within one year or less.
NON-CURRENT ASSETS: Long-term assets that will be held for more than one year. These assets cannot be converted into cash quickly.
A manufacturing plant is a non-current asset because it is usually bought for the purpose of producing goods for years to come.
A manufacturing plant can become a current asset if the owners decide to sell it within one year.
CASH AND CASH EQUIVALENTS: Actual cash or financial products that can be converted into cash quickly without a loss in value. Financial products in this category consist of high-quality government or corporate bonds that pay off in 90 days or less.
Observation: Intel’s cash and cash equivalents more than doubled from 2021 to 2022 because they:
1. Sold their NAND memory business;
2. Borrowed money;
3. Received proceeds from Mobileye’s sale on the stock market;
4. Received money when employees purchased shares of Intel at a discount; and
5. Sold their right to collect payments from customers who owed the company money.
SHORT-TERM INVESTMENTS: Investments that will be converted into cash within one year.
Observation: When I combine Intel’s “Cash and cash equivalents” with their “Short-term investments," the total comes to $28.3B. A decline of 3.1% from 2021.
Although their sales declined by 20% from 2021 to 2022, Intel was able to maintain a relatively stable cash balance. They did not need to deplete their cash to cover their expenses.
In my opinion, the more cash and short-term investments a company has, the better. A high cash balance means the company is better prepared to deal with emergencies.
My opinion is not shared by many analysts and investors. They believe it is inefficient for a company to have a high cash balance since cash does not produce high returns. I believe piece of mind and stability outweigh high returns any day.
ACCOUNTS RECEIVABLE, NET: Money customers owe to a company.
Observation: In 2022, Intel was owed 56% (-$5.3B) less money than in 2021. The decline might be a combination of:
1. Intel being owed less money because they had lower sales in 2022;
2. Intel putting more effort into collecting the money they are owed; and
3. Factoring.
FACTORING is when a company sells the right to collect their accounts receivables. Instead of waiting for the customer to pay them, the company receives most of the money they’re owed upfront from the factoring company. The factoring company charges a fee for this service.
In 2022, Intel gave financial institutions the right to receive $665M worth of their accounts receivable.
INVENTORIES: The raw materials used to create a product, and the finished goods held by a company to sell to customers and earn a profit.
Observation: Intel’s inventory increased by 22.7% (+$2.45B) from 2021 to 2022.
A large increase in inventory should always be monitored. It can be a sign that a company’s products are not selling, and the company will need to discount their products to generate sales.
Discounted prices mean lower revenues, lower margins, and lower profits.
At the same time, a buildup of inventory can be positive. If a company is expecting high sales for their product, they might stock up on inventory to make sure they have enough for customers.
The circumstances surrounding an increase of inventory should always be examined.
The large increase of finished goods (+55%) plus the decline in sales (-20%) mean Intel needs to drop their prices to reduce their inventory and increase sales.
ASSETS HELD FOR SALE: Assets that will be sold.
If this category is found within current assets, the assets are expected to sell in one year or less.
Observation: Intel’s “Assets held for sale” dropped 99.4% (-$6.9B) from 2021 to 2022 because they sold their NAND memory business to SK Hynix on December 29, 2021. This sale occurred after Intel closed their 2021 financial books on December 25,2021.
Next quarter I will keep an eye on this category to see if Intel decides to sell any of their other business segments. Pat Gelsinger is restructuring the company so he might sell other business divisions that are not aligned with Intel’s future.
OTHER CURRENT ASSETS: Miscellaneous assets that will be converted into cash within one year.
Observation: Other current assets more than doubled from 2021 to 2022. Aside from a $138M expected tax refund, and $133M to be received from SK Hynix, I am unsure why the balance increased.
TOTAL CURRENT ASSETS: Total assets that can be converted into cash within one year.
~56% of Intel’s Total current assets consist of “Cash and cash equivalents” and “Short term investments”.
I like when most of a company’s current assets are in cash or short-term investments because the company can better respond to emergencies, and the cash/short term investment value is stable. $10M in cash will mean $10M in cash.
On the other hand, if the company has $10M of inventory and an emergency occurs, the company will need to sell their inventory at a discount to generate cash.
I believe the quality of Current Assets is low if it contains mostly inventory.
For comparison, below is the ratio of “Cash and Short- term investments” to “Total current assets” for Intel’s competitors.
Numbers are based on the companies’ most recent filings. Click on the percentage to view their financial statement.
AMD: ~39%
Nvidia: ~57%
TSMC: ~76%
PROPERTY, PLANT AND EQUIPMENT, NET (PPE): The real estate and equipment used by a company to operate their business.
Observation: Intel increased their PPE by ~28% (+$17.6B) from 2021 to 2022. Based on the chart below, the biggest increase came from Intel constructing new buildings. We know they are building major projects in Arizona and Ohio, so the increase should be no surprise.
EQUITY INVESTMENTS: Ownership stakes of other businesses where the company lacks control.
Observation: It seems the value of Intel’s investment portfolio dropped ~6% (-$386M) from 2021 to 2022 due to a decline in the value of their investments and the sale of some assets. This decline does not appear to be significant.
GOODWILL: The price paid for a company that exceeds the market value of the company’s net assets.
Buyers will pay an above market price for an asset if they believe the asset has qualities that are hard to measure. Hard to measure qualities include a company’s brand, customer relationships, technology, and patents.
Goodwill increased 2.3% from 2021 to 2022. I expect a larger increase once Intel acquires Tower Semiconductor later this year.
IDENTIFIED INTANGIBLE ASSETS, NET: Non-physical assets that provide a competitive advantage to a business.
Intangible assets include, but are not limited to patents, technology, and customer relationships.
Observation: Most of Intel’s intangible assets are from the technology they have developed. This technology provides Intel with a competitive advantage because it is expensive and challenging for other companies to replicate.
AMORTIZATION: The loss in value of an intangible asset.
OTHER LONG-TERM ASSETS: Miscellaneous assets that will be held for more than one year.
Observation: Based on reading the 10K, this category includes some properties leased by Intel, government grants, money owed to Intel from the NAND business sale, and a few tax benefits.
TOTAL ASSETS: All the assets a company uses to operate its business.
Observation: Goodwill and Intangible assets are 18% of Intel’s Total assets. I like this low percentage.
I believe it is risky when most of a company’s assets are Goodwill and Intangible Assets because if the company’s products become unpopular, the value of their Goodwill and Intangible Assets will often collapse. Their stock price will follow close behind.
If we think of a company’s assets as collateral that is backing our investment, the more tangible the collateral, the safer our investment will be.
Below is the percentage of “Goodwill and Intangible Assets” to “Total Assets” for Intel’s competitors:
AMD: 71%
Nvidia: 15%
TSMC: 3%
Next week we will review Intel’s liabilities. Stay blessed and see you soon.
God willing.
“Peace be to the brothers, and love with faith, from God the Father and the Lord Jesus Christ. Grace be with all those who love our Lord Jesus Christ with incorruptible love. Amen.”
Ephesians 6:23-24
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