- Intel slashes FY22 non-GAAP capex guidance to $23bn, down from $27bn
- Near term earnings largely unaffected as AEM’s revenue has historically lagged Intel’s capex by approximately seven quarters
- Longer term outlook for AEM still positive as Intel’s capex is still poised on a general uptrend
- Maintain BUY with unchanged TP of S$6.04
Key highlights
- Intel slashes FY22 non-GAAP capex guidance to $23bn, down from $27bn. According to Intel CFO, Zinsner, the capex forecasts has been reduced to calibrate Intel’s investment in capacity whilst taking advantage of “larger than originally capital offsets”. We believe that these capital offsets could refer to government incentives. Overall, the capex reduction is expected to offset Intel’s lower than originally forecast cash flow on the back of weaker PC demand.
Impact on AEM
- Near term earnings largely unaffected. Based on our analysis, AEM’s revenue has historically lagged Intel’s capex by about seven quarters. For FY22, we are still expecting robust revenue growth of 37% y-o-y due to the ramp up of next generation of handlers to AEM’s key customer.
- Longer term outlook for AEM still positive as Intel’s capex is still poised on a general uptrend. Intel CEO, Gelsinger has reiterated that capacity is required since the semiconductor industry is doubling over the decade and Intel will not delay its $20bn investment for the new mega chip factory due to short term challenges. In addition, the Senate has just passed the $52bn CHIPS Act that is aimed at boosting US chip production. This is expected to subsidise Intel’s capex, which should mitigate potential capex cuts due to economic softness. A stable or growing capex will benefit AEM through demand for AEM’s test handlers.
- Maintain BUY with unchanged target price of S$6.04
AEM’s revenue lags Intel’s capex by c.7 quarters
* Data for AEM’s revenue is T+7Q. Example, for 1Q17, revenue for AEM is at 4Q18
Source: Bloomberg Finance L.P., DBS Bank
