Intel Benefit to Droop, Dismal Forecast Feared

Key Takeaways

  • Intel is expected to post adjusted fourth-quarter EPS of $0.18 on Jan. 26.
  • That would represent a year-over-year drop of 83%, while revenue is expected to drop 30%.
  • The chip maker has been hit by slowing PC sales and data center spending as well as market share losses.
  • Analysts at Citi and Susquehanna warned this week that Intel’s annual guidance may miss consensus estimates.

Intel (INTC) is expected to post weak fourth-quarter results after Thursday’s closing bell as the chipmaker copes with downturns in PC sales and data center spending as well as market share losses.

Adjusted earnings of 18 cents per share, based on analyst estimates compiled by Visible Alpha, would represent a decline of 83% year-over-year, while revenue is expected to have dropped almost 30% to $14.5 billion. Intel projected fourth-quarter adjusted earnings of 20 cents per share in October.

Intel’s stock, which climbed 13% in 2023 after dropping 49% last year, is more likely to move based on the company’s annual forecast. Analysts estimate declines of 4% in 2023 earnings and revenue, on average.

Recent street commentary suggests even that may be optimistic amid cuts in technology spending and costly investments intended to counter market share gains by rival AMD (AMD). Intel is also investing in new chip plants for its push into the foundry business of making semiconductors for other chipmakers.

“Full-year 2023 remains at risk as weakness persists in 1H23, and data center remains challenged through the year,” Susquehanna analysts wrote Monday. “We remain cautious on end-market/enterprise spending, as well as share losses to AMD’s more competitive Genoa.” AMD launched the Genoa chip for data center servers in November.

Citi analysts also painted a gloomy picture. “There [is] more downside to consensus estimates given the PC and data center correction, in addition to market share loss,” they wrote on Tuesday. While Intel may forecast a recovery in the second half of 2023, “we do not believe it will happen until 2024,” Citi said.

Intel remains the leading chip supplier for personal computers, and fourth-quarter PC shipments fell 28% year-over-year according to industry research firm IDC, after a 2021 boom spurred by work-from-home and remote learning amid the pandemic.

Intel’s third-quarter results were hurt by “an uncertain macroeconomic environment that continues to deteriorate, with slowing consumer demand, persistent inflation, and higher interest rates, that we believe impacts our target markets and creates a high level of uncertainty with our customers,” the company said in a securities filing.

Cash from operations dwindled to $7.7 billion in the first nine months of 2022, from $24.1 billion in the same period the prior year. Meanwhile, capital spending reached $19.1 billion from $11.6 billion a year earlier.

Intel remains on the hook for $5.4 billion to close its pending acquisition of Tower Semiconductor (TSEM), which is intended to accelerate the company’s foundry expansion and is slated to be completed shortly. Research and development spending through the first nine months of 2022 rose 17% year-over-year, contributing to a 10% rise in operating expenses amounting to 37% of revenue, up from 27% a year earlier. Intel cited “significant investments to accelerate our process technology roadmap” as well as “an intensified effort to attract and retain talent.”

Intel’s share price declined 39% over the past year, compared with the 14% drop for the S&P 500 Information Technology Sector Index (see chart below). Intel has also provided a 4.9% dividend yield over the last year, compared with 0.7% for the index.

Intel Share Price vs. S&P 500 IT Sector Index, Past Year

Source: TradingView.

Intel Key Stats

  Estimate for Q4 FY 2022 Q4 FY 2021 Q4 FY 2020
Adjusted Earnings Per Share ($) 0.18 1.09 1.52
Revenue ($B) 14.5 20.5 20.0

Source: Visible Alpha

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