💾 Are Intel's Chips Down?

Tesla's $1T milestone; Challenges for Burger King parent.

Hey Global Investor! Here’s what you need to know before the US markets open.

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💾 Intel: Down On Chips?

Chip manufacturing giant Intel Corp. (INTC) missed revenue estimates for Q3. On cue, it suffered its worst single-day performance since July last year. The mayhem may have just begun as the company acknowledged profitability and free cash flow would be impacted over the next few years. (Tweet This)

Where Are The Chips?

While EPS surpassed expectations, Intel’s revenue fell short in Q3.

Key Stats From Q3: 

  • Revenue: $18.1B Vs $18.24B expected
  • EPS: $1.71 Vs $1.11 expected

For Q4, Intel expects revenue to clock in at $18.3B, compared to street estimates of $18.24B. Intel’s client computing group, which contributes to nearly half of its overall topline, saw revenue drop 2% Y-o-Y. The PC chip business, part of this division, saw lower laptop sales due to chip shortages.

Think of it this way. Even if Intel were able to manufacture its chips, other suppliers are unable to do so and complete the product on hand – be it a laptop or LCD, or Wi-Fi device. And this is affecting overall sales of the product and, thus, sales of Intel’s chips.

Data centers are struggling to cope with the shortage of power chips and networking chips. Intel CEO Patrick Gelsinger said the world is going through its “worst” phase of the chip shortage and doesn’t expect the demand-supply imbalance to stabilize by 2023.

This is reflected in the performance of Intel’s Data Center Group, which sells processors and other silicon for data centers. Its sales of $6.5B were below analysts’ expectations of $6.66B, even if the number was up 10% Y-o-Y.

What spooked shareholders was the company’s guidance that its gross margins and free cash flows would decline over the next two to three years. Gross margins stood at 56% in Q3, which the company expects to decline but not fall below 50%.

Fab Is The New Fad?

Intel plans to shift its business model to become a manufacturer, or a foundry, for other chip designers. Along with that, it also intends to continue to design and manufacture processors of its own. The company is spending $20B in Capex to realize this ambition.

Part of this Capex includes a new semiconductor factory in Arizona. Intel also tried to acquire chip fabricator GlobalFoundries for $30B. However, the latter filed for an IPO in August, putting an end to Intel’s plans. During the quarter, the company signed up the US government as a foundry customer.

As Intel was looking to expand its operations in Europe, Germany emerged as the frontrunner for setting up the megafactory. Italy seems to now have joined the fray to convince Intel to set up the plant in the country instead. The investment is expected to be around $4.7B.

This expansion is part of Intel’s plan to augment manufacturing capacity in Europe to help avoid future supply shortages. Over the next decade, the company plans to invest $90B in Europe and will complement two chip fabrication plants in the US that will be announced by the end of the year.

With the spending of tens of billions of dollars on the anvil, shareholders are a worried lot. Will these mega investments bear fruit in a timely manner? What if there are new shocks to the system? Will Intel have the bandwidth to be opportunistic in evaluating new opportunities?

These uncertainties were enough to wipe off $26.6B in Intel’s market cap on Friday. Its current situation notwithstanding, investors may be taking refuge in the idea that the company is an old warhorse who’s been around long enough to know the tricks of the trade!

Market Reaction
INTC ended at $49.41, down 0.1%. This is after Friday’s 12% drop.

Company Snapshot 📈

INTC $49.41 -0.05 (0.10%)

Analyst Ratings (40 Analysts) BUY 35%  HOLD 40%  SELL 25%

Newsworthy 📰

Disappointing: Labour challenges weigh on sales for Burger King parent (QSR -5.02%)

Diversify: Facebook invests billions in metaverse efforts as ad business slows (FB +1.26%)

Landmark: Tesla zooms past $1T market cap on bet that the EV future is now (TSLA +12.66%)

Later Today 🕒

  • Microsoft Corp. Earnings (MSFT)
  • Alphabet Inc. Earnings (GOOG)
  • Visa Inc. Earnings (V)
  • Twitter Inc. Earnings (TWTR)
  • Eli Lilly and Co. Earnings (LLY)
  • Texas Instruments Inc. Earnings (TXN)
  • United Parcel Services Inc. Earnings (UPS)
  • Advanced Micro Devices Inc. Earnings (AMD)
  • General Electric Co. Earnings (GE)
  • Raytheon Technologies Corp. Earnings (RTX)
  • 3M Co. Earnings (MMM)
  • Robinhood Earnings (HOOD)
  • Lockheed Martin Corp. Earnings (LMT)
  • Chubb Ltd. Earnings (CB)
  • Sherwin-Williams Co. Earnings (SHW)
  • Invesco Ltd. Earnings (IVZ)

Today’s Market Terminology: Operating Cash Flow

Operating cash flow (OCF) is a measure of the amount of cash generated by a company’s normal business operations. Operating cash flow indicates whether a company can generate sufficient positive cash flow to maintain and grow its operations

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