Intel flat after Q4 beat masked by weak guidance
Chipmaker posts massive earnings surprise but warns of supply shortages and first-quarter headwinds
Intel shares barely budged Thursday after the chipmaker delivered a stunning earnings beat for the fourth quarter, only to temper enthusiasm with disappointing first-quarter guidance that underscores ongoing supply chain challenges and execution risks.
The Santa Clara-based company reported non-GAAP earnings per share of $0.15, smashing analyst estimates by roughly 1,950%. Wall Street had expected just $0.0073 per share, reflecting severely depressed expectations following a turbulent year for the semiconductor giant. Revenue of $13.67 billion also topped consensus forecasts of $13.14 billion.
Yet the stock, which had surged 38% in January ahead of the report, closed essentially unchanged at $54.32. Investors focused instead on Intel's guidance for the current quarter: revenue of $11.7 billion to $12.7 billion and non-GAAP EPS of breakeven. That represents a sequential decline from the fourth quarter's $13.7 billion in sales, reflecting industry-wide supply shortages that chief financial officer David Zinsner said would constrain available supply through the first quarter.
"We exceeded Q4 expectations for revenue, gross margin, and EPS despite industry-wide supply shortages," Zinsner said in a statement, adding that available supply would reach its lowest point in the first quarter before improving. "Healthy demand fundamentals in core markets continue due to rapid AI adoption strengthening the x86 ecosystem."
The split performance across Intel's business units highlights the company's uneven transition toward data-centric computing. Data Center and AI revenue grew 9% year-over-year to $4.7 billion, buoyed by strong demand for server processors in artificial intelligence workloads. However, the larger Client Computing Group, which encompasses PC processors, saw sales fall 7% to $8.2 billion, continuing a decline in the personal computer market that has pressured Intel's traditional revenue base.
According to The Wall Street Journal, Intel's return to losses in the fourth quarter reflects heavy spending on chip manufacturing capabilities as the company attempts to catch up with competitors in advanced process technology. The firm is ramping production of its Intel 18A process technology, which chief executive Lip-Bu Tan described as a critical milestone in rebuilding the company's manufacturing edge.
"We're building a new Intel with growing conviction in CPUs for the AI era," Tan said, noting the introduction of products on the Intel 18A process. "Our priorities remain sharpening our execution, reinvigorating engineering excellence, and capitalizing on AI opportunities across all our businesses."
Intel's manufacturing ambitions received a significant boost during the quarter with the completion of a $5 billion sale of common stock to NVIDIA, an unusual partnership between competitors that underscores Intel's need for capital to fund its foundry expansion. The company also announced a collaboration with Cisco for an integrated AI platform powered by Intel Xeon 6 processors and demonstrated technical viability of High Numerical Aperture EUV lithography with Dutch equipment maker ASML.
Analysts remain divided on Intel's prospects despite the recent rally. With the stock trading above $54, well above the median analyst target price of $41.08, 33 analysts currently rate the shares as hold, while just five have buy recommendations and seven advise selling. The company's trailing price-to-earnings ratio of 783 reflects the challenge of valuing a business that is in the midst of a costly transformation while still generating substantial cash flow from legacy operations.
Bloomberg reported that Intel's weak forecast underscores the difficulty the company faces in executing its turnaround strategy while competing with better-capitalized rivals like NVIDIA and AMD in the AI chip market. The January rally had been driven in part by enthusiasm around Intel's manufacturing ambitions and the potential for government subsidies under US industrial policy initiatives.
Looking ahead, investors will be watching for signs that supply constraints ease and that Intel's manufacturing investments begin to yield competitive products. The company's ability to deliver on its promise of AI-capable processors built on the Intel 18A process, expected to power more than 200 design wins according to management, will be critical to sustaining the recent momentum in the stock price.
With the first quarter forecast essentially flat on earnings and down on revenue, Intel's transformation remains a work in progress, leaving investors weighing the potential of a manufacturing revival against the near-term headwinds of a challenging PC market and persistent supply chain disruptions.