As Pat Gelsinger returns to Intel Corp. as chief executive, investors are likely to skim past the chip maker’s quarterly results and short-term outlook to look for more detail on the company’s nebulous plans to get back on track as a chip leader.
Intel is scheduled to report earnings after the bell on Thursday, but those results would likely be eclipsed by any details on changes to the company’s long-term direction ahead of Gelsinger’s arrival. Gelsinger next month will replace Bob Swan, who took the helm a little less than two years ago, after leaving his CEO post at VMware Inc. to return to the chipmaker that was his home for 30 years.
Gelsinger has a lot of work ahead of him to restore Intel to the glory it had when he was there previously. In the past year alone, Intel lost its throne as the largest U.S. chipmaker by market cap to Nvidia Corp. put added spring in Advanced Micro Devices Inc.’s, step by delaying its next-generation of 7-nanometer chips to at least late 2022 because of manufacturing issues, and shook up its organizational structure.
Analysts widely celebrated Gelsinger’s return as a much-needed shot in the arm but debated on details as to whether Intel should keep its own foundries; go “fabless,” meaning it would no longer do the actual process of manufacturing its own chips in-house but contract it out; or pursue a hybrid approach. Intel executives had promised to reveal their decision on that crucial step with this earnings report, though the change at the top announced a week before the results confused whether it would still happen.
Recently, there has been chatter that Intel would have Taiwan Semiconductor Manufacturing Co. TSM, make its 7-nm chips, according to Reuters. That could prove to put undue strain on already-stretched-thin contract fab capacity, likely prompting TSMC to boost its capital spending in 2021. Companies like Nvidia, AMD, Apple Inc. , and Qualcomm Inc., already contract their manufacturing out to fabs like TSMC. The already crowded field could get even worse following Microsoft Corp.’s, which announced it was developing its own chips, as Apple has already done.
Citi Research analyst Christopher Danley, who has a neutral rating and a $55 price target believes that with Gelsinger at the helm, “everything is on the table” with regards to Intel’s path.
“We believe (hope) Mr. Gelsinger will be given the ability to make wholesale changes at Intel, beginning with manufacturing,” Danley said. “Bob Swan, the outgoing CEO, we believe was a proponent of outsourcing CPU production to TSMC, which could be changed.”
What to look for:
Earnings: Of the 35 analysts surveyed by FactSet, Intel on average is expected to post adjusted earnings of $1.10 a share, which would be down from $1.52 a share reported in the year-ago quarter. Intel forecast $1.10 a share. Estimize, a software platform that uses crowdsourcing from hedge-fund executives, brokerages, buy-side analysts, and others, calls for earnings of $1.15 a share.
Revenue: Wall Street expects revenue of $17.46 billion from Intel, according to 32 analysts polled by FactSet. That would be down from the $20.21 billion reported in the year-ago quarter. Intel predicted revenue of about $17.4 billion. Estimize expects revenue of $17.59 billion.
However, the growing adoption of cloud-based solutions, across mobile computing, and network infrastructure for 5G, triggered by the momentum in coronavirus crisis-induced work-from-home wave, is likely to have cushioned the anticipated decline.
Also, a solid uptick in high-performance Xeon Scalable processors, which are integrated with Optane DC Persistent Memory solution, might have supported DCG performance in the quarter to be reported.
Moreover, strength in the memory vertical owing to cloud storage demand, and improvement in NAND pricing trends are anticipated to get reflected in the NSG segment’s fourth-quarter results. Also, the company’s non-volatile memory business is likely to have benefited from momentum in Optane modules.
Growing demand for server solid-state drives (SSD) in data centers, which has been driving growth in the NAND market, might have benefited the fourth-quarter execution.
Markedly, the Zacks Consensus Estimate for NSG revenues is currently pegged at $1.09 billion, indicating a decline of 10.4% over the prior-year quarter.
Furthermore, Mobileye’s new design wins, and the increasing proliferation of IoT and stabilizing the automotive industry may have contributed to Intel’s fourth-quarter performance. The growing clout of Mobileye’s SuperVision surround-view advanced driver-assistance system (ADAS) in premium electric vehicles (EV) bodes well.
Intel Long (Buy)
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