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Intel Stock Flashes Sell Signals After Chipmaker's Outlook Badly Misses

Intel Stock Flashes Sell
Intel Chips

Intel (INTC), one of the world’s largest semiconductor companies, reported its fourth-quarter earnings on Thursday, January 25, 2024. The company beat analysts’ expectations for both revenue and earnings per share, but its guidance for the first quarter of 2024 was disappointing. Intel stock plunged nearly 12% on Friday, triggering several sell signals and raising concerns about its competitive position in the chip industry.

Intel’s Q4 Earnings Highlights

Intel posted adjusted earnings of 54 cents per share on revenue of $15.41 billion in the fourth quarter of 2023. This represents a year-over-year growth of 440% and 10%, respectively. The company attributed its strong performance to the recovery of the PC market, which saw a surge in demand amid the pandemic. Intel’s PC-centric business segment grew 11% year over year, driven by record notebook sales. The company also saw growth in its data center, internet of things, and Mobileye segments, which offset the declines in its memory and programmable solutions segments.

Intel’s Q4 earnings marked a return to growth after eight consecutive quarters of declining earnings and seven straight quarters of declining revenue on a year-over-year basis. However, the company’s growth was still lagging behind its peers in the chip industry, such as AMD (AMD), Nvidia (NVDA), and Taiwan Semiconductor Manufacturing (TSM), which have been gaining market share and delivering faster innovation.

Intel’s Q1 Guidance Disappoints

The main reason for Intel’s stock sell-off was its dismal outlook for the first quarter of 2024. The company expects to report a GAAP loss of 25 cents per share and an adjusted loss of 13 cents per share on revenue of $12.7 billion. This is far below the consensus estimates of analysts, who were expecting earnings of 34 cents per share on revenue of $14.24 billion. Intel also lowered its full-year 2024 guidance, projecting revenue of $62 billion and earnings of $1.10 per share, compared to the previous estimates of $64.5 billion and $1.35 per share.

Intel’s weak guidance reflects the challenges that the company is facing in the chip industry, such as the global chip shortage, the rising competition from rivals, and the delayed transition to advanced manufacturing technologies. Intel has been struggling to produce chips at the 7-nanometer node, while its competitors have already moved to the 5-nanometer node or even lower. This has resulted in Intel losing market share and profitability in the high-end segments of the chip market, such as gaming, data center, and artificial intelligence.

Intel’s Strategy to Regain Leadership

In response to the mounting pressure from the market, Intel announced a new strategy to regain its leadership in the chip industry. The strategy, dubbed “IDM 2.0”, involves three key components: expanding its internal manufacturing capacity, increasing its use of external foundries, and offering its own foundry services to other chipmakers.

Intel plans to invest $20 billion to build two new chip factories in Arizona, which will increase its production capacity and enable it to produce chips for both itself and its customers. The company also intends to use more external foundries, such as TSMC and Samsung, to manufacture some of its products, especially those that require advanced technologies. This will allow Intel to access the latest chip-making processes and reduce its reliance on its own factories.

Additionally, Intel aims to become a major player in the foundry business, which involves making chips for other companies. Intel will leverage its existing manufacturing capabilities, as well as its new collaborations with UMC and Tower Semiconductor, to offer foundry services to a wide range of customers, including those in the automotive, mobile, and networking sectors. Intel hopes that this will help it diversify its revenue streams and compete with other leading foundries, such as TSMC and Samsung.

Intel Stock Analysis

Intel’s stock has been underperforming the broader market and the chip sector for the past year, as the company has been losing ground to its rivals. The stock is currently trading at around $44 per share, down 18% from its 52-week high of $54.28. The stock has a trailing 12-month price-to-earnings ratio of 9.6, which is significantly lower than the industry average of 35.6. The stock also has a dividend yield of 2.7%, which is higher than the industry average of 1.2%.

However, Intel’s stock also faces several headwinds, such as the weak guidance, the competitive pressure, and the uncertain execution of its new strategy. The stock has received several downgrades and price target cuts from analysts, who are skeptical about the company’s ability to regain its leadership and growth momentum. The stock has a consensus analyst rating of hold, with a price target of $48.76, implying a 10% upside potential from the current level.

Conclusion

Intel is a well-established chipmaker that has a dominant position in the PC market and a strong presence in the data center and internet of things markets. The company has delivered a solid earnings report for the fourth quarter of 2023, but its guidance for the first quarter of 2024 was disappointing. The company is facing several challenges in the chip industry, such as the global chip shortage, the rising competition from rivals, and the delayed transition to advanced manufacturing technologies. The company has announced a new strategy to regain its leadership in the chip industry, which involves expanding its internal manufacturing capacity, increasing its use of external foundries, and offering its own foundry services to other chipmakers. However, the execution of this strategy is uncertain and risky, and the company may face difficulties in competing with other leading chipmakers and foundries. Intel’s stock has been underperforming the market and the sector, and it has received several sell signals and negative analyst opinions. The stock has a low valuation and a high dividend yield, but it also has several headwinds and limited upside potential. Therefore, investors may want to wait for more clarity and evidence of improvement before buying Intel’s stock.

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