Intel's Revenue Jumped In Q4 But Is Not Enough To Soothe Investors
AInvestFriday, Jan 26, 2024 2:34 am ET
3min read
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After Tesla, Intel becomes the next one having a big slump in its stock price.

In Thursday's after-hours trading, the chip giant released its financial data for last quarter. Although they performed well last quarter, the outlook they gave for this year falls far short of market expectations. This has directly led to a sharp 10% drop in its stock price after trading hours.

Intel' stock price dropped in after-hours trading.

Increasing Revenue, But Disappointing Forecast

Intel's financial report shows that in the fourth quarter of last year, the company's revenue was $15.4 billion, up 10% y/y and putting an end to their seven consecutive quarters of revenue decline. Gross margin was 48.8%, up 5% y/y, and earnings per share were 54 cents, up 260% y/y. All three pieces of data exceeded market expectations.

As for department-specific data, Intel's Data Center and Artificial Intelligence (DCAI) department's revenue was $4 billion, down 10% compared to last year. However, its personal computer chip business reached $8.84 billion, up 33% from the same period last year. Intel's contract manufacturing department (IFS) also saw a 63% year-over-year increase in revenue for the quarter, reaching $291 million.

We delivered strong Q4 results, surpassing expectations for the fourth consecutive quarter with revenue at the higher end of our guidance. The quarter capped a year of tremendous progress on Intel's transformation, where we consistently drove execution and accelerated innovation, resulting in strong customer momentum for our products, wrote Pat Gelsinger, Intel's CEO, in the report.

Overall, at least in terms of revenue, Intel's performance was indeed quite good in the fourth quarter of last year, which should have a positive effect on the stock price. However, the chip giant's guidance for 2024 ended up being the disappointing part of the story.

According to Intel, their forecast for first-quarter 2024 sales is between $12.2 billion and $13.2 billion, with earnings per share of about 13 cents. Although these figures will be up 8% and 425% respectively from Q1 2023, they are still far short of analysts' average sales forecast of $14.25 billion and 34 cents earnings per share.

Can Intel Make Its Return?

This huge difference has caused the market to question Intel's prospects and ability to make a comeback once again.

In the past, Intel was a true industry giant - not only boasting a gross margin of up to 60% but also a high market share in every segment.

But now, the company is facing more intense competition: AMD and Nvidia, which are competitors, have released more powerful chips and are becoming the market's favorites.

Even in the server market, where its market share used to be as high as 99%, Intel is feeling the impact from companies including Amazon AWS, and Microsoft.

At the same time, Intel continues to lose ground in the lucrative data center chip market, and at least judging from its quarterly financial report, this trend has not reversed. And this further intensifies market concerns about Intel's profitability.

In a conference call, Gelsinger admitted that the situation in the first quarter of '24 had not been as expected, but he expects the situation to gradually improve over the rest of 2024. He said Intel is still on track to regain its top processor title. And this chip maker will no longer lose sales to competitors in personal computers and data centers.

Gelsinger said: We know we have much work in front of us as we work to regain and build on our leadership position in every category in which we participate.

Which Department is the Saviour for Rebuilding Intel's Glory?

One key part of Gelsinger's regain leadership plan is the contract manufacturing business. The company is heavily investing in building factory networks worldwide to meet the growing demand. Although the company has not yet announced which major customers have been acquired for this project, Intel also stated on Thursday that the department has obtained a lifetime order worth 10 billion dollars. This is a strong testament to the company's progress in this area.

However, the CEO also acknowledged, the number of orders received so far is not enough. Obviously, we need to get to a much bigger number, and that's exactly what we're going to do, he said.

At the same time, Intel is also pushing for AI accelerators. These chips will help accelerate the development of artificial intelligence models, and the growth of the AI industry will drive the demand for data center processors. Now, Intel already has a self-developed accelerator called Gaudi, and one improved version is believed to help the company compete with Nvidia and AMD in the future.

Intel also announced that the PC market is recovering from overstocking, and its largest customers are resuming parts orders. Gelsinger believes that due to the need for new machines that can better handle artificial intelligence software and related services, the total shipments of PCs should rise to about 300 million units per year.

In addition to its traditional business, Intel is also betting on autonomous driving, and its investment target is Mobileye Global. However, earlier this month, this autonomous car technology manufacturer's full-year forecast was below analyst expectations, which is not good news for Intel when it is currently in a precarious situation.

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