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Intel (INTC) Thursday Earnings: Can It Prove Analysts Wrong?

Daniel Laboe

Q3 earnings season is underway, and semiconductor stocks are up to bat. Texas Instruments TXN looks to have struck out in its disappointing Q3 after the bell on Tuesday. Missing on the topline and substantially lowering guidance. TXN is down over 6% in this morning’s trade, causing the broader semi category to open lower.

Intel INTC, the largest semiconductor company in the US, is preparing to release its September quarter earnings Thursday, October 24th, after the bell. Zacks Consensus estimates are showing an EPS of $1.24 on revenues of $18.04 billion, which would represent a decline in both EPS and revenues.

Intel is a relatively big mover on earnings, and recently that has been to the downside. This stock has rallied into Q1 and Q2 earnings only to fall in the month following the results. Keep that in mind in anticipation of this upcoming report.

Intel has beaten EPS estimates for every quarter since 2013, and rarely do they miss revenue. It appears the largest driver for this company on earnings reports is forward guidance due to the significant cyclicality in the semiconductor space.

CPU Battle

The fight for CPU market share is flaring between semiconductor powerhouses Intel and Advanced Micro Devices AMD. Intel has been the industry leader in PC and server CPUs for years, but recent execution issues have allowed AMD to come in and swooped up the free market share.

If you are a big PC gamer or computer whiz, I am sure you are more than familiar with the differences between Intel and AMD chips and likely have an opinion on the quality-price mix. For the laymen, a CPU stands for a central processing unit and is effectively the brain of a computer/server.

This technology is continuously advancing with the 54-year-old Moore’s Law still being relevant today. Gordon Moore, one of the co-founders of Intel, stated that the number of transistors on a chip doubles every 2 years while the cost is cut in half, which means that computers will continue to become exponentially faster and more efficient while at the same time cheaper.

Moore’s law still holds today. The number of transistors on a microchip depends on the size of the transistor nodes, which halve every few years. AMD has started shipping 7nm node CPUs while Intel is struggling to unveil its 10nm chips, which have experienced excessive delays. Intel originally intended to ship its 10nm chips back in 2016 but had issues on its 14nm node chips.

An atom is .1 to .5 nanometers (nm) to put into perspective the atomic level in which this is measured.

Intel’s recent production issues and delays in next-generation CPUs have allowed AMD to pounce and take a substantial amount of market share. Intel had been dominating the CPU market for years, but recent events have allowed AMD to take market share with their ability to not only create the highest performing CPU but at a lower price point.

Currently, Intel controls 69% of the CPU market, while AMD has been able to take a 31% share from the less than 20% it controlled a couple of years ago.

Intel doesn’t work with the world’s #1 foundry, TSMC TSM, for its CPU innovation and production, which is setting them behind the curve. TSMC is partnered with AMD to surpass the CPU giant, and they seem to have a competitive advantage. TSMC is in the process of developing 5nm transistor chips, which will be in production by next year. Intel says it will have 7nm chips by 2022, and now this timeline may be pushed back.

Intel may be forced to work with TSMC to remain competitive in the CPU space.

Shift To Data-Centric

Intel is in the midst of a transformation from a PC-centric company to a data-centric one. Nearly half of their growing revenue is now being driven by data-centric revenue streams, which expanded 18% this past fiscal year. Intel’s total accessible market (TAM) grew to more than $300 billion through acquisitions and product innovations. The business is committed to continue investing and developing their cloud computing, AI & analytics, along with the rest of their portfolio.

The PC business remains Intel’s biggest topline driver, but this business is both mature and overly competitive. Intel is going to have to rely on its data-centric businesses for growth moving forward.

The data-centric business is facing competition for the increasingly powerful GPU, which Nvidia NVDA has proven to be effective in data centers. GPU’s speed and functionality are slowly surpassing that of CPU’s, but today they work together to create the most propitious computer power.

Take Away

Intel is falling behind the curve, and it appears this may be a trend moving forward as its competitors broaden their competitive moat. Intel is still a force to be reckoned with in the CPU market, but it will continue to lose market share if it is not able to step its innovative game.

Intel analysts aren’t anticipating growth in Thursday’s quarterly report. If the company is able to prove them wrong, then INTC could see a substantial upside. I wouldn’t recommend any action before earning.

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