Intel gives weak forecast, supply shortages hurt sales

Intel Q4 Earnings & Market Outlook

Key Concepts:

• Yield: The percentage of functional products produced from a manufacturing process. Low yield indicates manufacturing issues.
• Foundry: A company that manufactures semiconductors for other companies (designing companies). Intel is attempting to grow its foundry business.
• Capex: Capital Expenditure – funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, and equipment.
• Neutral Launch: A dedicated launch vehicle designed for small satellite deployment.
• Optical Components: Devices used in networking to transmit data using light.

I. Intel’s Q4 2023 Financial Performance

Intel reported Q4 2023 revenue of $13.67 billion, a 4.1% decrease year-over-year, but exceeding the estimated $13.43 billion. Intel Products revenue reached $12.93 billion, also down year-over-year but surpassing the $12.79 billion estimate. A breakdown of revenue streams reveals:

• Client Computing: $8.2 billion, down 6.6% year-over-year, missing the $8.3 billion estimate.
• Data Center and AI: $4.74 billion, a positive 9% year-over-year increase, exceeding the $4.42 billion estimate. This segment demonstrated strong performance.

For Q1 2024, Intel forecasts revenue between $11.7 billion and $12.7 billion, slightly below the Bloomberg estimate of $12.56 billion. Adjusted operating expenses are projected at $16 billion, close to the estimated level. Intel acknowledges strong demand but highlights ongoing challenges with manufacturing and inventory depletion.

II. Analysis with Ivana Deleska (Spear Invest)

Ivana Deleska, founder and CIO of Spear Invest, identified the Q1 guidance as the primary disappointment, attributing it to manufacturing problems and low yield. She emphasized that a key aspect of Intel’s turnaround story relies on improving manufacturing efficiency, and the current situation is concerning for investors.

• Inventory Depletion: Deleska acknowledged that depleting inventory indicates demand, but cautioned that it raises questions about securing future supply, given broader supply chain constraints, specifically regarding memory capacity and component availability.
• Revenue Stream Importance: She highlighted two critical areas: the chip design business (competing with AMD) and the foundry business. While the chip design side needs to regain market share, the foundry side is currently losing money and requires a clear path to profitability.
• Valuation Concerns: Deleska addressed concerns about Intel’s valuation, suggesting it’s predicated on a rapid earnings turnaround, particularly within the foundry segment. She noted the stock’s price is currently driven by headlines and optimism rather than fundamental performance.
• Analyst Ratings: The majority of analysts (46) maintain a “hold” rating on Intel, a stance Deleska believes will likely remain unchanged unless significant manufacturing improvements are demonstrated.

III. Spear Invest’s Stock Picks & Market Themes

Deleska shared three stock picks, outlining the investment rationale behind each:

• Coherent (COR): Focused on optical components and lasers, benefiting from tightening supply in the networking sector. The company connects semiconductors and facilitates data transmission. A cycle turnaround in the middle of last year is driving positive outlook.
• Rocket Lab: Capitalizing on the growing space exploration market, specifically the increasing demand for launch capacity. Despite a recent launch issue with their new neutral launch vehicle, Deleska remains optimistic about the company’s long-term potential, particularly in the “data centers in space” theme.
• Lamb Research: Positioned to benefit from increased capital expenditure (Capex) in the semiconductor industry, particularly on the memory side. As capacity becomes constrained, demand for Lamb Research’s equipment is expected to rise. She noted that previous upside has been driven by manufacturing and design (Nvidia, AMD, Intel), and now Capex is expected to be the next driver.

IV. Data & Statistics Mentioned

• Intel Q4 2023 Revenue: $13.67 billion (-4.1% YoY)
• Intel Q4 2023 Estimate: $13.43 billion
• Intel Products Q4 2023 Revenue: $12.93 billion (- YoY)
• Intel Products Q4 2023 Estimate: $12.79 billion
• Client Computing Q4 2023 Revenue: $8.2 billion (-6.6% YoY)
• Client Computing Q4 2023 Estimate: $8.3 billion
• Data Center & AI Q4 2023 Revenue: $4.74 billion (+9% YoY)
• Data Center & AI Q4 2023 Estimate: $4.42 billion
• Intel Q1 2024 Forecast: $11.7 - $12.7 billion
• Intel Q1 2024 Estimate: $12.56 billion (Bloomberg)
• Analyst Rating: 46 “Hold” ratings

V. Logical Connections & Synthesis

The discussion flows from Intel’s reported earnings to a deeper analysis of the underlying issues and future prospects. Deleska’s insights connect the financial results to broader industry trends, such as supply chain constraints and the growing demand for data center infrastructure and space exploration. Her stock picks are presented as opportunities to capitalize on these trends. The core argument is that while Intel shows signs of improvement in certain areas (like Data Center and AI), its turnaround hinges on resolving manufacturing challenges and achieving profitability in its foundry business. The current valuation reflects optimism, but remains vulnerable to setbacks in these key areas.

Conclusion:

Intel’s Q4 earnings reveal a mixed picture. While revenue beat estimates, concerns remain regarding manufacturing yield and the Q1 forecast. The company’s success depends on overcoming these hurdles and executing its turnaround strategy, particularly in the foundry segment. Investors should closely monitor Intel’s progress in addressing manufacturing issues and achieving sustainable profitability before considering a more bullish stance. The broader market themes highlighted – networking, space exploration, and semiconductor Capex – offer alternative investment opportunities within the technology sector.