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Intel Corporation (NASDAQ: INTC ) remains a market-leading technology company despite facing many challenges in the past and losing market share to competitors. Falling sales of PCs and smartphones are the main concern of the semiconductor giant, given its strong presence in the CPU market. Management looks to overcome the current slowdown through effective cost management and capacity expansion.
After suffering continuous losses since the start of 2021, Intel shares have been stable in recent months, a sign that the bottom line is on the way. Low valuations and good recovery prospects should encourage those looking to invest, but a challenging market environment makes the stock a risky bet today. As the company prepared to release its fourth-quarter earnings, the stock fell to its lowest level in eight years. Considering sharp stock movements are usually associated with earnings announcements, it’s worth keeping an eye on INTC in the coming days and evaluating the company’s earnings performance.
Headwind
After a weak year, business conditions are unlikely to improve in 2023 due to post-pandemic changes in consumer demand and economic uncertainty. At the same time, the company often fails to keep up with fabless chipmaker Advanced Micro Devices, Inc. (NASDAQ: AMD) when it comes to providing advanced compact chips, with the latter enjoying the flexibility of outsourcing production to third-party foundries. Lack of innovation caused Intel to lose major customers like Apple, Inc. (NASDAQ: AAPL ), which stopped using chips in most of its products.
Read management/analyst commentary on Intel’s Q3 2022 earnings report
Meanwhile, Intel is re-examining its business strategy to beat the competition and has implemented what it calls Internal Casting Model to establish consistent processes and improve overall efficiency. The company also made a re-entry into the discrete GPU market last year after a long hiatus, giving it tough competition from rivals like AMD and Nvidia Corporation (NASDAQ: NVDA ). This week, Intel announced its 13th generation mobile processor. The initiative, powered by the upcoming new generation of 10nm chips, should be able to achieve its goal of returning to processor leadership by 2025.
Intel has delivered stronger-than-expected earnings regularly for more than seven years, except for the second quarter of 2022. The trend is similar to the top line, although there are more misses. Experts consider the last three months of the fiscal year to be challenging for the company, with consensus estimates pointing to a 25% drop in revenue to $14.5 billion in the fourth quarter. Net profit, excluding one-off items, appears to have fallen sharply to an unimpressive $0.2 per share. The report is scheduled to be published on January 26, after regular trading hours.
Key Number
The performance was disappointing in the third quarter when the main operating segment of client computing and data center contracted sharply, more than offsetting revenue growth in other divisions. That translates into a 60% plunge in adjusted earnings. Taking cues from the weak results – although headline numbers beat expectations – management has set its fourth-quarter earnings target and revenue target well below the previous year’s level.
From Intel’s Q3 2022 earnings conference call:
“We are responding to the current environment by taking aggressive actions to reduce costs in COGS and OPEX when carefully protecting the investments needed to accelerate the transformation and ensure that we are well positioned for long-term market growth. In addition to near-term cost reductions, we have also identified structural cost reductions and efficiency drivers… In aggregate, our efforts should drive annual savings of $3 billion in the near term and $8 billion to $10 billion by the end of 2025.
Why investors should add Nvidia stock to their watchlist
Intel’s market value has nearly halved in the past twelve months as the stock remains stuck in defeat. But there is a positive start for 2023 and it has traded higher during Wednesday’s session.
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