Intel Corporation (INTC) Q4 Earnings Preview: Can the stock hold gains?
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In the rapidly evolving landscape of the semiconductor industry, Intel Corp (INTC), the world's largest maker of computer processors, is poised to reveal Q4 earnings results and its latest outlook for the PC market after the market close.
INTC has been at the forefront of the semiconductor industry, but recent challenges and competitive pressures have raised concerns among investors. The company is undergoing a significant business model transformation, aiming to establish itself as a major U.S.-based contract chip manufacturer.
The company faces aggressive competition from Advanced Micro Devices (AMD) and Nvidia in both PCs and servers. While revenue for the first three quarters of 2023 declined by 21%, INTC's stock rallied by 91%, emphasizing its potential.
The year 2023 has been a time of transition for Intel as it continues to transform its business model and build the first major U.S.-based contract chip manufacturer with support from the government. Intel is progressively breaking itself into separate companies. The IPO of Mobileye showcases Intel's commitment to autonomous driving technology, while a potential IPO for Altera may further reinforce a breakup strategy. Moreover, Intel's planned separation of the products and foundry segments could position its foundry business as the second-largest player in the market, with an estimated value of $100 billion.
In June, Intel announced that it would treat its products and foundry segments as separate businesses. Although the company currently has no plans to break the two businesses apart, Richard considers the split inevitable and suggests that shareholders will benefit from it when it happens.
Q4 Key Areas
Analysts estimate Intel will report revenue of $15.1 billion and EPS of 45 cents.
Client Computing Group (CCG) Performance is expected to have higher year-over-year revenues, driven by product innovation like Intel Arc A580 desktop graphics and the 14th Gen Intel Core desktop processors, which should contribute to incremental revenues.
The introduction of new products like Intel Core Ultra mobile processors for AI PCs, featuring improved power efficiency and 3D graphics performance, may positively impact the earnings.
Intel's efforts to increase efficiency in semiconductor manufacturing and improve supply chain mechanisms are seen as positive developments that might reflect in the earnings report, particularly margins.
Key developments include a $25 billion investment to expand chip manufacturing in Israel and a memorandum of understanding with Siemens AG to improve production efficiency in semiconductor manufacturing.
Softening PC Sales Raise Concerns:
The latest shipment numbers from major notebook makers signal a weaker-than-expected PC recovery, sparking concerns about INTC's performance in the sector. The PC industry's current state has come into question after KeyBanc Capital Markets' analyst, John Vinh, lowered his 2024 laptop PC unit forecast following an assessment of the latest shipment numbers from major Taiwanese notebook manufacturers. Vinh cited weaker-than-expected PC recovery, with laptop shipments for December coming in at 13.3 million units, lower than his estimate of 14 million units.
Amidst the decline in global personal computer sales and aggressive competition from Advanced Micro Devices (AMD), Intel's stock price increased by 91% while AMD's surged by 132%.
Analysts' Perspective:
Intel's earnings preview for Q4 was provided by Wedbush Securities, which left its numbers unchanged while aligning its outlook with the company's guidance. The firm, however, revised its estimates for 2024 and 2025, citing confidence in standard server builds lifting and a stronger recovery of PC sales in the second half of the year. As a result, Wedbush expects higher revenue levels to support stronger gross margins (GMs) as utilization improves.
Deutsche expects Intel to deliver a solid report despite persistent macro headwinds impacting the semiconductor sector. The firm predicts normal revenue seasonality and the inventory correction at Micron Technology (MBLY) to negatively affect Intel's Q1 revenue estimates. While DBAB expects cyclical pressures to persist in the near term, it remains positive about Intel's long-term prospects.
Northland Securities' chip analyst Gus Richard is optimistic about Intel's future. He believes the company is significantly undervalued and sets a price target of $68, making him Wall Street's biggest Intel bull. Richard's confidence in Intel comes from the improvement in multiple fronts and the company's potential breakup, suggesting a sum-of-the-parts valuation approach. He anticipates Intel to regain the lead in process technology from Taiwan Semiconductor Manufacturing Company (TSMC) in 2025. Richard also forecasts non-GAAP gross margin to rise to nearly 53% in 2025, up from 43% in 2023. While PC demand is expected to remain weak in the first half of 2024, Richard believes that a recovery will follow. He also supports the AI PC story in content creation and productivity applications, suggesting that new ways to use the technology will emerge in 2024 and drive PC sales in 2025.
AI Exposure
In recent news, Intel Corporation and DigitalBridge Group, Inc. formed Articul8 AI, Inc., an independent company specializing in enterprise-grade, full-stack, vertically-optimized, and secure generative artificial intelligence (GenAI) software platforms. This new platform keeps customer data, training, and inference within the enterprise security perimeter, providing customers with a choice of cloud, on-prem, or hybrid deployment.
Intel Corporation (INTC) is monitored by 31 Wall Street analysts who currently have an average rating of Hold for the stock. With a market capitalization of $206.96 billion and an enterprise value of $230.81 billion, INTC's forward Price-to-Earnings (P/E) ratio stands at 27.32. This is higher than the S&P 500's current forward P/E ratio of 21.72, suggesting that INTC is valued at a premium compared to the broader market average.
Conclusion:
Intel Corporation (INTC) faces challenges in the PC industry and intense competition from companies like AMD and Nvidia. However, analysts express confidence in the company's long-term prospects and expect recovery in PC sales. Intel's commitment to regaining manufacturing leadership and its strategic moves toward business breakup are key factors driving optimism. Investors should closely monitor Intel's progress within the market as it navigates a transformative phase.
Please note: The perspectives presented in this article are based on the analysis of available information and do not constitute financial advice. Readers are encouraged to conduct further research before making any investment decisions.