Intel has recently faced significant scrutiny following disappointing forward guidance despite reporting better-than-expected fourth-quarter results. The semiconductor giant released its earnings on January 22, revealing non-GAAP adjusted earnings of $0.15 per share on sales of $13.7 billion. This performance surpassed analyst predictions, which estimated earnings at $0.08 per share on sales of $13.4 billion.
However, the company’s outlook for the first quarter has raised concerns among investors. Intel projects sales between $11.7 billion and $12.7 billion, with the midpoint falling short of the analyst consensus of $12.51 billion. Additionally, management anticipates a break-even quarter, contrasting with Wall Street’s expectation of adjusted earnings per share of $0.05.
Despite these challenges, Intel stock has surged 111% over the past year, reflecting a robust recovery and ongoing investor interest. Central to Intel’s recovery will be its performance in artificial intelligence (AI) sales and its foundry business. In the fourth quarter, Intel’s AI and data center segment achieved sales of $4.7 billion, marking an 8.9% year-over-year growth and exceeding analyst expectations of $4.43 billion. The company attributed this success to the high demand for new server chips, though supply chain issues inhibited even stronger sales.
In an attempt to address these supply challenges, Intel is reallocating its production focus at its factories. Management is optimistic that output will improve throughout the year, though this transition has affected first-quarter guidance. Intel has also begun shipping chips manufactured using its new 18A process, and development of the next-generation 14A process is reportedly on schedule.
Conversely, Intel’s foundry business continues to be a financial drain, reporting a staggering $10.3 billion operating loss last year. The segment’s sales to third-party customers reached just $222 million in the most recent quarter, raising concerns about the foundry’s adoption rate. Despite expectations of double-digit revenue growth in the foundry segment for Q1, market sentiment has remained cautious, as demonstrated by the disappointing reaction to Intel’s production outlook.
Moreover, Intel’s adjusted gross margin fell to 37.9% in Q4, with the forecast for the current quarter targeting a margin of 34.5%. Analysts speculate that this decline may be linked to the product mix associated with the 18A process, implying that efficiency in manufacturing yields could be subpar. This scenario could lead to diminished margins for the chips produced via this new process and potentially weak demand from third-party clients.
Looking ahead, Intel’s next earnings report will be critical. The company’s forward guidance regarding sales and gross margins will be closely monitored, as investors evaluate whether the 18A process can significantly contribute to the company’s recovery or if hopes will need to transition to the upcoming 14A process. As the semiconductor landscape continues to evolve, Intel’s ability to adapt and innovate will play a crucial role in shaping investor confidence and the company’s market trajectory.
