Intel executives have focused on increasing capacity in the long run as there is a short supply of semiconductors, but Wall Street is concerned about what happens when there is no shortage of supply.
It is due to report first-quarter earnings Thursday after markets close, after a quarter in which the chip maker’s building plans included acquisitions. In mid-February, Intel announced a $5.4 billion bid to buy Israel-based chip maker Tower Semiconductor, for its impressive production capacity, as well as plans to spend more than $20 billion building a fab “mega site” in Ohio and $20 1 billion US locations in Arizona. Intel also acquired Israel-based cloud optimization software company Granulate Cloud Solutions for an undisclosed amount, with one report citing nearly $650 million.
It all comes a year after CEO Pat Gelsinger first announced his plans for a comprehensive build since taking over at Intel. At an investor meeting for Intel earlier this year, Gelsinger laid out his vision with a outlook that was above Wall Street estimates at the time and was met with skepticism by analysts. Intel also expects its strike margins to recover beginning around 2025 as the company continues to transform itself.
Wall Street was never aware of Intel’s plans to spend a lot of money to build capacity, and analysts are now concerned about the eventual end of the COVID-induced chip shortage, which has driven chip makers to post profits. As the boom in PC sales appears to be coming to an end, the continued outperformance of chips such as CPUs or Intel CPUs may be over as well.
Read: Why Semiconductor Stocks Are ‘Almost Uninvestable’ Despite Record Profits Amid Global Shortage
“It now appears that Intel stock has both tactical and structural concerns,” writes Bernstein analyst Stacy Rasgon, who rates Intel stock as “underperforming” with a $40 price target.
“In the near term, ‘peak PC’ concerns are increasingly showing up in consumer laptops, with CPU stock now clearly patched,” Rasgon said. “Structurally, the company’s recent analysts day has not been incredibly good as investors now have to grapple with the reality of declining margins, lack of free cash flow, and seemingly challenging (if not outlandish) future revenue targets as the latest server roadmap pushes further. It’s muddying the picture of participating in their most important market.”
What are you looking for
gains: Among the 36 analysts surveyed by FactSet, Intel is expected to post an average adjusted earnings of 78 cents per share, down from the 82 cents per share the company reported a year ago. Intel expected 80 cents a share. Estise, a software platform that uses crowdsourcing from hedge fund executives, brokerages, buy-side analysts, and others, is calling for an earnings adjustment of 85 cents per share.
Revenues: Wall Street expects revenue of $18.33 billion from Intel, according to 31 analysts polled by FactSet. That would be down from $18.57 billion reported in the last year’s quarter, which would bring revenue down for the seventh quarter from last year’s quarter. Intel expected revenue of $18.3 billion. Estimize expects revenue of $18.51 billion.
Analysts surveyed by FactSet expect revenue from customer computing to reach $9.42 billion; data center revenue $6.78 billion; Non-Volatile Memory Solutions revenue $898.5 million; “Internet of Things” or IoT, revenue of $1.01 billion; and Mobileye with a net worth of $415.8 million.
Read: The end of single-chip wonders: Why Nvidia, Intel, and AMD ratings have seen massive upheaval
stock movement: Speaking of the possibility of a decline in revenue in the seventh consecutive quarter, even if Intel beat expectations – as it generally does – shares have fallen after the company’s past seven earnings reports.
During the quarter ending in March, Intel stock fell 3.8%, while the Dow Jones Industrial Average DJIA
– of which Intel is a component – down 4.6%, the S&P 500 SPX index
The Nasdaq Composite Index is down 5%.
It decreased by 9.1%, the PHLX Semiconductor Index SOX
It fell 13.1%.
What the analysts say
Christopher Rowland, a financial analyst at Susquehanna, with a neutral rating and a $52 target price, reiterated those concerns about the stock, which, he said, may carry over into the second half of the year.
Read: The epidemic PC boom is over, but its legacy will live on
However, Rowland said Intel could have a “savings allowance” in that his checks indicated that the company gained a modest market share in desktop and laptop computers in the first quarter. Intel’s biggest competitor when it comes to the battle for market share is Advanced Micro Devices Inc. AMD
“In summary, we expect a synchronized quarter and index overall, but we see a mid-term risk building as we move into 2022 given declining PC demand and potential margin headwinds,” Rowland said.
Citi Research analyst Christopher Danley, with a neutral rating and a $58 price target, expects Intel to head to a steady $18.3 billion quarterly due to weak notebook sales.
“Our neutral rating of Intel is driven by our expectations of reductions in consensus estimates driven by a loss of AMD shares and a correction of microprocessor inventory in the second half of 2012 as PC market demand returns to average,” Danley said.
Read: Chips for 2022 may be sold out due to shortages, but investors are worried about the end of the party
Of the 40 analysts covering Intel, nine have a buy rating for the stock, 22 have a hold rating, and nine have a sell rating, along with an average price target of $52.15, according to FactSet data.