INTC: Will Costs Cutting Save The Chipmaker?
Recap.
When it rains, it pours.
That was exactly what happened to $Intel(INTC)$ last Thu, 01 Aug 2024.
On that fateful day, Intel released its Q2 2024 earnings after market closed for the day.
This comes against an already spooked US market, due to +5.96% increase in weekly jobless claims, stoking fears of an impending recession.
And just like that, Intel fell almost -20% in extending trading:
Post earnings announcement.
Amid confirmation that it would lay off 15% of its employees, as part of a $10 billion cost-reduction plan.
Also, as part of its remedial action plan,
Intel will skip dividend payment for fiscal Q4 2024.
It will also lower full-year capital expenditures by over -20%.
Q2 2024 Earnings.
Earnings per share (EPS): $0.02 adjusted vs. $0.10 expected.
Revenue: came in at $12.83 billion, down -1.0% (YoY) vs $12.94 billion expected.
Q3 Outlook.
Earnings per share (EPS): $(0.03) adjusted.
Revenue: Range of $12.5 billion to $13.5 billion. YoY, this will be -$1.2 billion lower.
Root Causes.
(1) AI endeavour.
In a bid to remain competitive in the AI technology front, Intel ramped up its Core Ultra PC chips that can handle AI workloads and increased expenditure in the process.
The CEO (Pat Gelsinger) believed it is a “right” decision because it’s AI PC business will grow from current < 10% of market share to > 50%, in 2026.
(2) Plant migration.
Intel decided to move it manufacturing plant (of Intel 4 and 3 chip wafer) from Oregon to Ireland; where costs of production in the long run will be lower.
However, there is an initial setup costs that is unavoidable.
(3) Price competition.
Chips pricing was more competitive than planned during the quarter,
Intel’s CFO Dave Zinsser, also reported a price war has been in the works with $Advanced Micro Devices(AMD)$ and $Qualcomm(QCOM)$ working fervently, to chip away Intel’s market share.
(4) Trade Block.
Intel also revealed that in May 2024, the US Commerce Department has revoked its export licenses for consumer items to a customer in China, widely believed to be Huawei.
This resulted in revenue lost.
If its thought that after the 01 Aug 2024 was the end of the fall, think again.
On Fri, 02 Aug 2024 - US market continued with its downwards spiral.
This time the catalyst was a disappointing US Non Farm payroll (NFP) report
For July 2024, a total of 114,000 new jobs were created. This was -34.86% lower than Wall Street consensus of 175,000.
The fear of a recessive US economy just got compounded with the NFP report published, a day after a spike in jobless claims.
With a negatively charged market, Intel opened Friday -26.05% lower at $21.94.
It ended Friday -0.46% lower at $21.84.
Technical Analysis.
Overall summary.
Looking at the summary, it’s a “Sell” rating overall. (see above)
While “technical” consensus points to a “Buy” rating, moving average consensus garnered “Strong Sell” rating.
I will likely sit out Monday’s trading to get a sense of the overall US market sentiments.
Do not forget, there are 4 more trading days after Monday.
Resistance and Support.
Based on Mon, 05 Aug 2024’s closing price of $20.11, below are its resistance and support level.
It will help investors decide when to enter (if so wishes):
Pivot point 1st Resistance level (high) - $20.57.
Pivot point 2nd Resistance level (high) - $21.02.
Pivot point 1st Support Point (Low) - $19.47.
Pivot point 2nd Support Point (Low) - $18.84.
Intel isn't profitable now. It will be a while before it does. Plus, they lost Chinese customers and need to find new ones. So, it's not a good time to buy Intel stock yet I feel.
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