🔰 [Beginner's Guide] Intel's 1.7 Trillion Yen 'Phantom Deficit' Scandal. Was It Actually in Perfect Health!?
Hello, I'm Kato-chan.
It is my daily routine to diagnose the 'corporate health' of companies in the stock market as well.
Now, regarding Intel's (INTC) latest earnings report. If you look at the news, scary headlines like 'A massive 11 billion dollar (approx. 1.7 trillion yen) deficit!' are flying around, aren't they? Many beginners may have panicked after seeing this, thinking, 'Intel is a terminally ill patient on the verge of bankruptcy...' and sold off their shares.
But please, wait a moment.
Just like the human body, you cannot tell a company's true state of health just by looking at the 'fever on its forehead (superficial news).' If you look closely at the blood tests and MRI (primary information), you can see that Intel is actually surprisingly healthy right now, and is in the middle of being reborn as a muscular powerhouse.
You don't need to understand difficult accounting jargon (like P&L, B/S, or derivatives)! Before we dive into the detailed earnings analysis in the main section, I will compare Intel's current situation to 'human health' and explain it with super-simple diagrams that even an elementary school student can understand.
🤒 Symptom 1: The thermometer reads 40 degrees! But is the patient running around energetically? (The core business is in great shape)
The '1.7 trillion yen deficit' that the news is making a fuss about is like 'a state where the thermometer reads 40 degrees.' Normally, you wouldn't even be able to stand up, right?
However, when we measure Intel's 'basic physical strength (the ability to earn from its core business),' we get a completely different result.
Revenue (food intake): They are eating 25% more than last year and are absorbing nutrients vigorously.
Core business profit (muscle strength): They were shaky last year, but this year they have made a brilliant recovery and turned into a surplus (positive).
Cash flow (blood circulation): This is the most important thing! The circulation of cash (blood) for the company is pumping through the body at about 2.8 times the intensity of last year.
'The thermometer reads 40 degrees, but the patient is running a full marathon with ease'... that is the strange state Intel is in right now.
💉 Symptom 2: So, what is the true identity of that '40-degree fever (1.7 trillion yen deficit)'?
If the patient is healthy, why did such a large deficit appear on the ledger (medical chart)?
Actually, this is not an illness (a failure of the core business), but rather something like 'the side effects of a strong vaccine administered by the US government.'
This time, in exchange for receiving significant support from the US government, Intel made a complex promise (warrant agreement) that 'if its stock price fluctuates above or below a certain line (18.4 dollars), a penalty-like calculation will be made.'
The doctor known as the strict US accounting rules (US GAAP) says this:
'If you were to pay that penalty right now, it would be a burden of about 1.7 trillion yen! Since it's the rule, I'll write '1.7 trillion yen loss' on today's chart (ledger)!'
In other words, this is just a 'phantom deficit (paper loss)' written down just in case for calculation purposes. Not a single yen of cash was actually taken from Intel's wallet. It is nothing more than a 'numerical trick on the ledger' that causes no pain or itching.
🏥 Symptom 3: But wait, the cash in the wallet has decreased by 14 trillion yen? Is that wasteful spending?
Looking at the financial statements here, there is another fact: 'the cash on hand (savings) has decreased significantly.' Just looking at the news, people often think, 'See, they're running out of money, they're in trouble!'
But please rest assured. This is not wasteful spending, but a 'super proactive self-investment (surgery) for the future'.
When Intel was building its 'most important, shiny factory (Fab 34)' in Ireland, it didn't have enough money, so it gave half (49%) of the factory's rights to a sponsor called Apollo. To use an analogy, it was like having half of your house held by a debt collector.
This time, Intel used cash earned from its core business and other sources to pay approximately 14.2 billion dollars (about 2 trillion yen) and bought back 100% of the factory's rights from the sponsor!
The cash in the wallet decreased temporarily, but from now on, 100% of the profits generated by that factory will belong solely to Intel. In other words, it was a brilliant investment to turn the nutrients that were being sucked up by others into its own muscle.
🩺 Now, let's go and decipher the real 'medical chart (primary source)'!
How was it?
If you only look at the news headlines, it looks like a 'company that is losing a lot of money, running out of cash, and about to go bankrupt,' but the truth is the exact opposite.
The core business is making a ton of money riding the AI wave.
The 1.7 trillion yen deficit is a 'phantom' created by accounting rules, and cash has not actually decreased.
The reduced cash was a 'proactive investment' to make the strongest factory 100% its own.
This is the big picture of Intel's latest financial results.
Now that you have a clear understanding of the big picture, it's finally time to start the main part.
In the main part, I will use the raw SEC filing (documents submitted to the U.S. Securities and Exchange Commission) data that I have piled up on my desk to directly decipher the three medical charts: the P&L (Profit and Loss Statement), the BS (Balance Sheet), and the CF (Cash Flow Statement).
How do professional investors see through the numbers?
Some technical terms will appear, but if you keep this 'analogy' in the back of your mind while reading, the puzzle pieces will surely fall into place.
Now, let's move on to the main part where we expose the 'true strength of the new Intel' that lies beyond the illusion of numbers!
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Thank you very much for reading until the end.
If you could like or follow, it would be great encouragement for my next analysis article! See you in the next earnings analysis.
Everything is for the readers!!!
(Disclaimer: This text is for informational purposes only and does not constitute solicitation for specific stocks, investment advice, or a guarantee of the completeness of financial analysis. Investing involves risk. Please always make final investment decisions at your own responsibility.)
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