INTC Slides after Disappointing Q4 and Weak Outlook

Shares of Intel (NASDAQ: INTC) continued to slide by more than 9% in pre-market trading on Friday after the chip giant’s disastrous Q4 results.

Even the company’s Q1 outlook proved to be weak as it now expects revenues to be in the range of $10.5 billion to $11.5 billion and an adjusted loss of $0.15 per share. In contrast, analysts were expecting $14.02 billion in revenue along with an adjusted EPS of $0.25.

Pat Gelsinger, Intel’s CEO stated on its Q4 earnings call that the company expected macro weakness to persist at least in the first half of this year but could improve in the second half. The CEO added that “all our markets are being impacted by macro uncertainty, rising interest rates, geopolitical tensions in Europe and COVID impacts in Asia, especially in China.”

The company also continues to expect demand to soften for PCs. In its third quarter, INTC forecasted its total addressable market (TAM) for PCs to be in the range of 270 million to 295 million units for FY23. However, given the softening demand for PCs in the ongoing Q1, the company now anticipates the total TAM to be at the lower end of this range.

This muted demand outlook also persists for INTC when it comes to the server market and it has now projected “Q1 server consumption TAM to decline both sequentially and year-over-year at an accelerated rate with first half 2023 server consumption TAM down year-on-year before returning to growth in the second half.”

A major reason for Intel’s eroding market share in the PC and server processing chips market has been its rival AMD (AMD). According to a Reuters report, citing data from IDC research while INTC still has a 70% market share of this market, this is still a far cry from its market share of more than 90% in 2017.

INTC is also facing rising competition from Nvidia (NVDA) which is branching out to central processors while Apple (AAPL) and Amazon (AMZN) are looking at designing their own chips.

In spite of Intel’s disappointing revenue outlook for Q1, the company still expects to maintain a capital intensity at or below 35% for FY23.

Following this disappointing outlook and weak Q4 results, Bernstein analyst Stacy Rasgon termed the company’s deterioration as “stunning” and remained concerned about its cash position.

The analyst commented, “[This deterioration] brings potential concern to the company’s cash position over time in our opinion, with our new model contemplating significant cash burn on the back of worse economics, high CAPEX, and a heavy dividend; it seems reasonable to think that investors should at least start thinking about the security of the latter.”

The analyst has a Sell rating on the stock with a price target of $20, implying a 33.5% downside at current levels.

Analysts are sidelined about INTC stock with a Hold consensus rating based on three Buys, 18 Holds, and seven Sells.