Intel earnings: We know who the next CEO is, but what decisions will be made before he arrives?
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 INTC,
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. chip maker by market cap to Nvidia Corp. NVDA,
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 caused confusion about whether it would still happen.
Read: With Gelsinger as new CEO, Intel gets an engineer who can bring back innovation
Recently, there has been chatter that Intel would have Taiwan Semiconductor Manufacturing Co. TSM,
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.
Stock movement: Intel stock declined 3.8% in the third quarter. Over the same period, the Dow Jones Industrial Average DJIA,
What analysts are saying
Susquehanna Financial Group analyst Christopher Rolland, who has a neutral rating on Intel and a price target of $54 on the stock called the move to tap Gelsinger, “An important first step in solving THE problem.”
“Unlike prior CEO Swan whose experience was in finance, Gelsinger is an engineer by trade and even helped architect some of Intel’s first x86 designs (such as the famous 80486 processor),” Rolland said. “Notably, the move comes two weeks after activist investor Third Point announced their stake in the company and ahead of a very consequential period of decisions that need to be made regarding Intel’s manufacturing future.”
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Jefferies analyst Mark Lipacis, who has a hold rating and a $50 price target on Intel, said the chip maker still has “foundational challenges,” noting that the x86 model of CPUs that Intel, and Gelsinger, pioneered are not as relevant as they used to be given Internet-of-Things technologies, parallel processing tech from Nvidia, and homegrown accelerators from cloud-service providers like Amazon.com Inc. AMZN,
Cowen analyst Matthew Ramsay, who has an outperform rating and a $75 price target, said “Intel’s potential turnaround starts now.”
“It is hard to overstate the importance of Mr. Gelsinger’s hire, not just to Intel, but the US technology/semiconductor industry,” Ramsay said. “After years of letting its manufacturing leadership evaporate, we have long argued that what was once the largest semiconductor supplier in the world needed a technologist leader to solve its technology problems .”
Of the 38 analysts who cover Intel, 13 have buy ratings, 16 have hold ratings, and nine have sell ratings, with an average target price of $57.81, according to FactSet data.
