Intel Earnings ‘A Crime Scene,’ ‘Astonishingly Bad,’ ‘Historic Collapse’
Financial analysts and market experts are in shock after Intel delivered its worst results in 20 years.
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Intel’s guidance for the January-March 2023 quarter doesn’t look much more promising than its fourth-quarter earnings. (And note that Intel has declined to provide an outlook for its full-year 2023.)
The company is expecting an adjusted net loss of 15 cents per share. Investors and analysts were projecting that Intel would earn 25 cents per share. Along those lines, Intel said its first-quarter revenue will sink to $10.5 billion from forecasts of $13.93 billion.
What’s to blame for the drop?
Intel executives say slowing data center sales and too much PC/chip inventory account for the company’s latest results.
Indeed, the Intel earnings gut-punch comes as cloud computing providers including Amazon Web Services, Microsoft Azure and Google Cloud report slowdowns in adoption. End users, cleaning up from frenzied, pandemic-forced technology deployments, have started to pull back on their cloud spending, realizing how pricey it really is. More organizations are implementing cost controls and optimization measures, actions that translate into less revenue for the hyperscalers.
Some of those measures include end users turning to independent cloud vendors, which tend to offer the same cloud storage capabilities as the Big 3 at much lower prices. Vultr, Linode and DigitalOcean, for example, all position themselves as affordable options to AWS S3 buckets, in particular.
Keep an eye on these companies. Vultr, for its part, is opening a slew of new data center regions throughout the world. This activity indicates significant uptake among end users and channel partners keen to spend their cloud computing budgets with more deliberation.
But as we note later on, Intel CEO Pat Gelsinger has given financial analysts a more optimistic take on the matter.
Intel’s also blaming a glut of chips on its fourth-quarter results and first-quarter projections. To be sure, demand for personal computers has taken a nosedive now that the worst of COVID-19 has passed. Organizations are not buying as much equipment with workers settled back in the office, or in hybrid or remote work roles.
Recall, too, that Apple no longer uses Intel chips in its Macbooks or iPads. That shift had to create quite a dent for Intel, as the company reportedly continues to try to woo back Steve Jobs’ iconic company as customer.
Altogether, the issues facing Intel have financial observers on edge. Let’s break down some of the reactions.
Over at Rosenblatt Securities, analyst Hans Mosesmann late Thursday urged clients to sell their Intel shares. He also lowered the firm’s price target to $17 from $20, per CNBC.
“No words can portray or explain the historic collapse of Intel, with management attempting to blame a worst-ever PC inventory digestion dynamic and macro/China/enterprise to an over 20% q/q decline in sales,” Rosenblatt wrote in a client memo.
On the next slide, see who else is far from bullish on Intel.
In a memo to clients, analyst Stacy Rasgon at brokerage Bernstein got straight to the point:
“We have written the phrase ‘Worst earnings report in our history of covering this company’ on more than one occasion over the last couple of years,” he wrote, per MarketWatch. “But this time we REALLY mean it …”
Rasgon chopped his price target from $23 to $20 and maintained Bernstein’s underperform rating. He further called Intel’s first-quarter outlook “astonishingly bad even vs. low expectations, with revenues and gross margins collapsing.”
He added, “We keep asking ourselves when things will be as bad as they can get for Intel. And we keep getting surprised.”
Over at JPMorgan, analyst Harlan Sur predicts “a challenging road ahead” for Intel, according to a client memo.
The bank now ranks Intel as underweight.
Analysts at Cowen titled their client research memo this way: “Couldn’t really think of a title to describe that, but here’s the note anyway.”
And Stephanie Link, chief investment strategist and portfolio manager at Hightower Advisors, said on Twitter that Intel’s earnings are a result of “more than the industry’s cyclical downturn.”
She didn’t say what those additional factors might be, but industry observers are pointing fingers at Intel’s C-suite. They’re also calling for Intel to cut its dividend. The company a 36-cent cash dividend for each quarter last year. It has paid a dividend for each quarter since 2013. In the fourth quarter of 2022, dividends amounted to $1.5 billion.
In prepared remarks, Pat Gelsinger, CEO at Intel since 2021, blamed “persistent macro headwinds” for the low fourth-quarter revenue.
“[A]ll our markets are being impacted by macro uncertainty, rising interest rates, geopolitical tensions in Europe, and COVID impacts in Asia, especially China,” he said.
Those headwinds started in 2022’s second quarter, Gelsinger said, “and underscored a 2022 characterized by unprecedented volatility, which will continue in the near-term.”
Noting the dismal earnings numbers, he added, “We readily admit our results and our Q1 guidance are below what we expect of ourselves.”
Over at TheLayoff.com, one commenter wrote, “PG, if you are reading this, [y]ou need to get your sh-t together! If Investors can vote to fire all your useless managers we would probably do! You are hurting us for past 2 years failing to recover the company where it should be. You need to make a tough and right decisions and stop slacking off! Very not impressed with your ER and blaming Covid! During Covid times and shortages AMD and other semis are benefiting the most but you?! You were stagnant at $60 per share and continue to falls (sic) into 20s! Enough is enough or you’ll see repercussions on your next shareholders voting agenda.”
Let’s revisit the slowdown in cloud spending. That has an impact on data center rollouts, where Intel sees a lot of chip sales. Despite the pullbacks, Intel CEO Gelsinger expects revenue from cloud users to turn around. More than 95% of cloud customers use Intel, he told analysts on Thursday.
“[T]hat gives us a very strong incumbency that we get to renew as we rebuild our customers’ confidence. So as you put all of those things together, yes, we realize that we stumble, right? We lost share. We lost momentum. We think that stabilizes this year, and we’re going to be building a road map that allows us to regain leadership for the long term in this critical market.”
Next, find out what Intel plans to do to save some money.
Intel plans to cut $3 billion in costs throughout 2023. Some of those measures will come via layoffs. Intel this week already told California’s Employee Development Department that it will axe 177 jobs in Santa Clara, on or after March 15.
“All impacted employees are being notified of separation with at least 60 days’ notice,” Marc Nadler, Intel’s director of corporate people movement team, told the state in a filing.
That brings to 378 the number of roles Intel so far plans to eliminate in the Bay Area.
By midafternoon on Friday, Jan. 27, Intel stock was trading at $27.77, down nearly 8%, and closer to its 52-week low of $24.59 than its 52-week high of $54.08.
Intel plans to cut $3 billion in costs throughout 2023. Some of those measures will come via layoffs. Intel this week already told California’s Employee Development Department that it will axe 177 jobs in Santa Clara, on or after March 15.
“All impacted employees are being notified of separation with at least 60 days’ notice,” Marc Nadler, Intel’s director of corporate people movement team, told the state in a filing.
That brings to 378 the number of roles Intel so far plans to eliminate in the Bay Area.
By midafternoon on Friday, Jan. 27, Intel stock was trading at $27.77, down nearly 8%, and closer to its 52-week low of $24.59 than its 52-week high of $54.08.
Financial analysts and other market experts were in shock on Friday after Intel reported earnings that were the worst in two decades, with little to no warning that results would be so dismal.
The chip maker released its fourth-quarter and full-year 2022 numbers late Thursday after Wall Street’s closing bell.
And the outcomes were not pretty — so much so that investor Wasteland Capital went so far as to say this on Twitter: “An unprecedented sh*t-storm of bad decisions & execution. Rev down … margins at new lows, miss on everything, and catastrophic guide. WTF? What did they do to this iconic American business? Who is in charge here? It’s not an earnings release. It’s a crime scene.”
That reaction – and others – arose after Intel earnings for the fourth quarter showed a 32% year-over-year decline, down to $14 billion, and a net loss of $644 million. For the whole of 2022, Intel reported a 20% drop in revenue, falling to $63.1 billion.
And if you’re expecting things to get better for the January-March period, don’t hold your breath.
“[W]e’re expecting Q1 to be the most significant inventory decline at our customers that we’ve seen in recent history,” chief financial officer Dave Zinser told financial analysts on the fourth-quarter Intel earnings call on Thursday, according to a transcript from The Motley Fool.
See the slideshow above for all the numbers, analyst reactions and other observations on this latest round of Intel earnings.
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