🧹 Is Intel A Mess Full Of Chips?

Billionaire discloses stake in Wynn Resorts.

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Intel: Core Shaken?

Intel Corporation (INTC) is the worst hit by the slowdown in global PC sales. It expects economic uncertainty to persist well into 2023. With financials going out of the window, it is relying on other avenues to keep itself afloat. As a saving grace, its recent spin-off had a strong debut on the bourses post its IPO. Can Intel manage to get its priorities straight?

Too Many Chips

Half of Intel’s revenue comes from the business that sells chips for Personal Computers. It wants to expand its manufacturing and catch up with its rivals in Taiwan and South Korea in building the world’s most cutting-edge chips. It has already earmarked billions in investment to expand its production capacity across Arizona, Ohio, and Germany.

But what’s the catch?

Nobody is buying PCs anymore!

Within a few months, the market for chips and semiconductors has gone from high demand, low-supply to the complete opposite due to high inflation, higher interest rates, and even higher fears of a recession that have crushed demand altogether. A stronger US Dollar is not helping matters for companies like Intel, who get a substantial portion of their earnings from the overseas market.

With the worst quarterly drop in PC sales over two decades, Intel expects the computer market to shrink by 15-19% this year, worse than initially anticipated. That’s not it, they believe that the contraction may be more significant next year. PC shipments declined 15% in the third quarter.

The fears reflect well and truly in Intel’s financial performance for Q3. Even as revenue and EPS managed to surpass estimates, the erosion of its bottom line and a dour outlook for the current quarter does not paint a pretty picture.

Key Highlights From Q3:

  • Revenue: $15.34B Vs $15.25B expected
  • Earnings Per Share: $0.59 Vs $0.32 expected

Despite sales beating estimates, they were down 20% year-on-year. The company, which reported a surprise loss in Q2 due to the slowing demand for PCs, saw its net profit nearly erode this quarter. Intel’s Q3 bottom line stood at $1B, down from $6.8B during the same period last year.

The sale of PC chips declined 17% during the quarter. Intel’s data center business, which mostly caters to data processors for companies and governments, is now facing stiff competition from rival Advanced Micro Devices (AMD), even losing market share within the space. That division saw sales decline 27% in Q3.

No Good News In Sight

Intel cut its full-year revenue guidance for the second time this year. Here’s the revised guidance:

  • Q4 revenue: $14B – $15B Vs $16.3B expected
  • 2022 Revenue: $63B – $64B Vs $65.3B expected
  • 2022 Earnings Per Share: $1.95 Vs $2.15 expected

Intel now expects the economic uncertainties to persist well into 2023. With the balance sheet struggling to stay in the black, it has resorted to other measures to ensure things don’t go out of hand.

For starters, the company has outlined a major cost-cutting agenda. It is aiming for $3B in annualized cost savings next year, while the target for 2025 is $8B – $10B. The cost reductions are already taking shape, with Intel taking a $664M restructuring charge for the same in Q3. The company is looking at job cuts and reducing factory hours to address operational inefficiencies.

Intel spun off its driver-assist subsidiary Mobileye last week and raised $861M in its initial public offer. The company will retain a large stake in the spun-off entity. Shares jumped 38% on trading debut, giving the unit a $17B market value, a far cry from the $50B that Intel sought last year when it first disclosed plans to list Mobileye. The unit faces stiff competition from Alphabet-backed Waymo and Amazon’s Zoox.

Gelsinger, who said that the September quarter would be the nadir of the company’s financial performance, now believes that predicting a bottom for the computer chips market currently would be “too presumptive.”

Despite the slowdown, Intel will continue to build its plants as per schedule. However, it has cut its Capex guidance for the year from $27B to $25B. It will also not purchase expensive chip-making equipment for these plants unless necessary.

Analysts believe that Intel’s path to its long-term strategy was built on a shaky foundation that is now collapsing. They are expecting the PC market to revert to pre-Covid levels in the near future. However, some are seeing a silver lining as PC client business sales grew sequentially and are hopeful of data center losses also moderating in the current quarter.

Intel is looking to press the accelerator and brake at the same time and is struggling to find the right pace or direction to move forward. They are spending billions on building plants they remain unsure of whether they would be utilized or not. With shares already halved this year, it remains to be seen how many more cho(i)ps it will have to endure before some degree of normalcy returns.

Market Reaction
INTC ended at $28.43, down -2.20%.

Company Snapshot 📈

INTC $28.43, -0.64 (-2.20%).

Analyst Ratings (36 Analysts) BUY 19% HOLD 58%  SELL 23%

Newsworthy 📰

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Later Today 🕒

  • Advanced Micro Devices Earnings (AMD)
  • Uber Technologies Inc. Earnings (UBER)
  • Airbnb Inc. Earnings (ABNB)
  • British Petroleum Plc Earnings (BP)
  • Eli Lilly & Co. Earnings (LLY)
  • Pfizer Inc. Earnings (PFE)
  • Mondelez International Inc. Earnings (MDLZ)
  • Sony Group Corporation Earnings (SONY)
  • Devon Energy Corporation Earnings (DVN)
  • Electronic Arts Inc. Earnings (EA)
  • The Clorox Company Earnings (CLX)
  • 7:15 PM IST: US Manufacturing PMI
  • 7:30 PM IST: Job Openings & Quits
  • Through The Day: Motor Vehicle Sales

Today’s Fun Fact

The name Intel is a combination of the first 2 letters of ‘Integrated Electronics’.

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