December 6, 2017 / 8:12 PM / a year ago

Fitch Rates Intel's $2B 30-Year Senior Notes Offering 'A+'

(The following statement was released by the rating agency) CHICAGO, December 06 (Fitch) Fitch Ratings has assigned an 'A+' rating to Intel Corp.'s (Intel) $2 billion 3.734% senior notes maturing Dec. 8, 2047, which Intel expects to issue in connection with the first of two concurrent exchange offers intended to retire higher coupon senior notes. Pro forma for settlement of the exchange offers, Intel's total debt decreased by $344 million to approximately $31.3 billion as of Sept. 30, 2017. A full list of current ratings follows at the end of this release. In the first offer, Intel will use net proceeds from the senior notes issuance and $292 million of available cash to retire approximately $1.9 billion of higher couple senior notes that have been either validly tendered and not withdrawn as of expiration date or subject to notice of guaranteed delivery by expiration date. In the second offer, Intel will use approximately $518 million of available cash to retire approximately $435 million of higher coupon senior notes. Intel will use an additional approximately $36 million of available cash for accrued and unpaid interest in aggregate for both exchange offers. KEY RATING DRIVERS Leading Market Positions: Fitch expects Intel's strong market positions in data-centric businesses (estimated 30% market share) and personal computer (PC)-centric businesses (estimated 90% market share) provide significant revenue scale with positive double digit top line growth in data-centric businesses more than offsetting secular decline in PC-centric markets. Technology Leadership: Fitch believes Intel's significant cumulative investments in research and development (R&D) and manufacturing capabilities have resulted in technology leadership and support Fitch's expectations for top line growth and solid profitability through at least the intermediate term. At the same time, Fitch recognizes Intel's shift in focus to growth markets exposes the company to a greater number of competitors with a breadth of technologies and architectures, along with equally significant financial resources, in many cases. Solid Financial Flexibility: Fitch expects Intel's annual free cash flow (FCF) to remain robust in spite of significant investment requirements, although the majority of FCF is outside the U.S. Fitch estimates more than $3.5 billion of annual FCF through the forecast with upside should Intel achieve its operating profit margin targets in the mid-30s from lower spending offsetting expectations for lower gross profit margins over at least the intermediate term. FCF should provide adequate capacity for organic investments, while Fitch expects Intel will fund sizeable acquisitions, particularly domestic targets, with incremental debt. High Investment Intensity: Fitch expects R&D and capital spending will continue to represent 35%-40% of revenue, despite Intel's target of trimming other expenses to offset some gross profit erosion. Intel's strategic focus on technology leadership in data-centric markets, including data center, autonomous vehicles and internet of things (IoT), will require significant investments in processors and other areas such as non-volatile memory to differentiate product performance. Customer concentration: Fitch expects customer concentration will intensify over time as cloud service providers (CSP) consolidate information technology (IT) spending. Fitch believes new workloads will remain cloud-native and modernized workloads will continue shifting from on-premise to the cloud, on a net basis. As a result, enterprise IT spending will continue declining by low-single digits while CSPs continue aggressive capacity and capabilities expansion, driving greater customer concentration and, therefore, less even demand patterns. DERIVATION SUMMARY Fitch's rating and Outlook reflects Intel's meaningful intellectual property (IP) portfolio in software, design and manufacturing, leading market share positions, solid profit margins and cash flow resulting in sufficient financial flexibility to maintain high investment levels while conservatively managing its balance sheet. Intel's PC-centric markets (still 55% of core revenue and roughly 60% of operating income), in which the company faces competitors with weaker financial flexibility or competing architectures but limited market penetration, are in secular decline but yield solid cash flow to support Intel's strategic focus on data-centric markets. Intel has lower share in these markets and the company faces a greater number of competitors also with the scale and financial flexibility to maintain high investment rates, particularly within certain markets where technology standards are evolving. While Intel's credit profile currently is in-line with the rating, Fitch believes technology risk in data center, automotive and IoT markets will likely remain heightened for the foreseeable future and could result in outcomes ranging from greater diversification leading to a strengthened credit profile to a weakened credit profile from substantial adoption of competing technologies. KEY ASSUMPTIONS --Data Center Group (DCG) grows by mid-single digits through the forecast period, driven by strong demand from CSPs; --IoT grows by double digits through at least the forecast period from solid platform adoption as these markets evolve; --Flat to slightly down Client Computing Group (CCG) growth through the forecast period from continued unit declines offset by a richer PC mix; --Stable operating EBITDA margins due to operating expense reductions offsetting expectations for modest gross profit margin pressures; --Total leverage (total debt to operating EBITDA near 1x from operating EBITDA growth, versus a Fitch estimated 1.2x for the latest 12 months (LTM) ended Sept. 30, 2017 before and after the exchange offers; --Capital spending remains volatile but in the mid-teens through the forecast period; -- $500 million of annual tuck-in acquisitions with no meaningful impact on financial results; --Intel refinances debt maturities and uses domestic cash after dividends and acquisitions for share repurchases. RATING SENSITIVITIES Developments that May, Individually or Collectively, Lead to Negative Rating Action --Total leverage sustained above 1.5x, likely from intensified shareholder returns amid weaker than expected operating performance, given the majority of pre-dividend FCF is offshore. --Negative organic revenue growth from share losses in DCG or slower than anticipated IoT platform adoption. --Normalized FCF to adjusted debt sustained below 10%, likely driven by pricing pressures in data center markets from competing technologies or architectures or increased buying power of CSPs. Developments that May Collectively Lead to Positive Rating Action --Management's commitment to moderate shareholder returns to maintain total leverage below 1x. -Intel expands sustainable and profitable share leadership in data-centric markets, despite intensifying competition from alternate architectures. --Significant disruption by Intel's non-volatile memory and solid adoption of Intel's IoT platform, resulting in further diversification of Intel's sales mix and profit pools LIQUIDITY Solid liquidity. Liquidity was solid at Sept. 30, 2017 and consisted of: i) $17.5 billion of cash and cash equivalents, short-term investments and trading assets, of which $10 billion was outside the U.S. and ii) an up to $10 billion commercial paper (CP) program, none of which was outstanding at quarter end. Intel does not have a revolving credit facility to support its CP program, but Fitch views the company's cash flow profile as providing ample support for the program, particularly given Fitch's expectation for only moderate use. Fitch's expectations for more than $3.5 billion on average of annual FCF also support liquidity. FULL LIST OF CURRENT RATINGS Fitch currently rates Intel as follows: Intel Corp. --Long-Term Issuer Default Rating (IDR) 'A+'; --Short-Term IDR 'F1'; --CP program 'F1'; --Senior unsecured notes 'A+'; --Junior subordinated notes 'A'. Altera Corp. --Long-Term IDR 'A+'; --Senior unsecured debt 'A+'. Contact: Primary Analyst Jason Pompeii Senior Director +1-312-368-3210 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst Alen Lin Senior Director +1-312-368-5471 Committee Chairperson Megan Neuberger Managing Director +1-212-908-0501 Date of Relevant Rating Committee: March 14, 2017 Summary of Financial Statement Adjustments: Fitch made no financial statement adjustments that depart materially from those contained in the published financial statements of Intel Corp. Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email: Additional information is available on For regulatory purposes in various jurisdictions, the supervisory analyst named above is deemed to be the primary analyst for this issuer; the principal analyst is deemed to be the secondary. Applicable Criteria Criteria for Rating Non-Financial Corporates - Effective from 10 March 2017 to 7 August 2017 (pub. 10 Mar 2017) here Additional Disclosures Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below