Intel needs to save dosh by cutting back on capital expenditure, according to Goldman Sach’s James Covello.

Covello thinks investors expecting Intel will cut some of the $13.5 billion in spending it has planned for this year. For some reason he thinks this is a good thing. His argument is that after spending all of its operating cash flow in seven of the last eight quarters, on capital spending, on dividends, and on share repurchases, net cash fell from $20 billion to $5 billion from Q4 of 2010 through Q4 of last year.

PC inventories are too high, and that Intel has been unnecessarily contributing to that inventory build-up. He said that if Intel were to significantly reduce capex to about $7-$8 billion he would be a lot happier. Covello thinks Intel’s robust capex is created excess supply. At the moment Intel’s 4Q12 fab utilization was about half and PC OEM inventory is near a multi-year high.

He did not believe a small capex reduction would be sufficient to fix the supply problem. To make matters worse Goldman’s hardware team expects 2013 PC units to decline slightly.