INTC: Earnings Slump - Buy the Dip or Wait?
On Thu, 25 Apr 2024, $Intel(INTC)$ announced its much anticipated Q1 2024 earnings.
This comes hot on the heels of Wall Street stretching its necks out and hoping for a feel-good alibi to pump Intel’s stock price higher. And the results ?
Q1 2024 Earnings.
In summary, Intel first-quarter earnings has beaten Wall Street expectations for earnings per share (Yay!).
Unfortunately, sales came up light (uh-oh!).
Then the bomb, Intel gave a weak forecast for current quarter - Q2 2024. (ka-boom!)
Intel earnings vs LSEG consensus expectations:
Earnings per share: $0.18 adjusted vs. $0.14 expected.
Revenue: gained +9% at $12.72 billion vs $11.7 billion YoY, vs $12.78 billion expected.
Q2 2024 Forecast.
Earnings per share (forecast) : $0.10 vs $0.25 expected.
Revenue (midpoint forecast): $13 billion vs $13.57 billion expected.
Personally, Wall Street expectations are off the roof, I feel.
Then again, what do I know, its Wall Street right!
Why did Intel fall?
Below are 3 main reasons why Intel fell after earnings released:
Disappointing Financials: Although Intel beat Q1 revenue estimates, their guidance for Q2 fell short of expectations. This suggests short-term growing pains.
Fierce Competition: Companies like $NVIDIA Corp(NVDA)$ & $Advanced Micro Devices(AMD)$ are making strong inroads in AI, an area crucial for future growth. Intel is perceived as lagging behind.
Manufacturing Challenges: Intel's foundry business, that aims to compete with TSMC and Samsung, is incurring significant losses. I have covered this in details in a separate post on 07 Apr 2024 (click here ! to read about it).
Where does Intel go from here ?
Things have changed drastically, with the return Pat Gelsinger as CEO since 15 Feb 2021, in the midst of Covid pandemic.
His singular focus and razor sharp attention to details have turned things around in Intel - a US Grand dame that have almost become a relic due to myriads of reasons.
Under Pat’s stewardship:
(1) Foundry Business:
Gelsinger established Intel Foundry as a autonomous division, to compete with giants like TSMC & Samsung.
This bold move aims to recapture market share and boost domestic chip production.
To this end, Intel sold off some businesses to focus on what it does best - chips.
(2) Manufacturing Enhancements:
He's prioritizing investments in new fabrication plants (fabs) in the US and Europe.
With the aim to regain a technological edge.
He wants Intel to catch up with rivals in making the most advanced chips.
(3) Focus on AI:
Recognizing the importance of AI, Gelsinger is ramping up Intel's AI hardware and software offerings to compete with Nvidia.
Intel is adding new technology to its chips to make PCs better for artificial intelligence tasks.
Chips evolution during Gelsinger's CEO tenure (2021-present):
Intel does not release exhaustive lists of every chip produced, but they've launched several new CPU lines under Gelsinger, (see below):
My viewpoint: (mine & mine only)
To spin and turn a company around in 3 short years and under challenging Covid 19 environment is no mean feat. (see above)
Pat Gelsinger has his work cut out for him.
Based on the different generations of chips released so far, it does appear that Intel is charting the intended course, hitting one milestone after another.
It is known that the semiconductor industry is cyclical in nature (business).
As such, a weaker Q2 outlook as “informed” in advanced by CEO during Intel’s earnings conference call is not really that alarming actually.
It should be overall results for 2024 that really matters.
As of 02 Mar 2024 - Intel will receive $8.5 billion (in grants) & $11 billion (in loans) from the US government to produce cutting-edge semiconductors in the biggest deployment of funds under the CHIPS and Science Act.
This is a testimony that Intel has strong support from the US government in its bid to return to its former glory as a chip maker.
However, in the immediate to short term, there will be mini storms ahead this treacherous path.
There is somehow a quiet confidence that Intel will be able to turn things around.
It just needs time, a precious commodity in the AI race for chips supremacy.
The biggest mistake that Intel needs to “right the wrong” was turning down an opportunity to provide processors for Apple’s iPhone, believing that Apple was unlikely to sell enough of them to justify the development costs.
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