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Intel ‘crushed the quarter, but it’s all about the outlook,’ strategist says

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Moor Insights & Strategy CEO Patrick Moorhead joins Yahoo Finance Live to discuss Intel's fourth quarter earnings, the company's recent stock dip, and the impact of supply shortages.

Video Transcript

[PHONE RINGING]

- Well, shares of chip maker Intel getting hit hard in this session, down more than 6%, after the company reported fourth quarter earnings after the bell yesterday. The tech giant beating on both the top and bottom lines, but the company's largest business segment, the client computing group, posted a 7% decline in business year on year. Those numbers still coming in above estimates.

CEO Pat Gelsinger saying the chip supply shortage is having an impact on sales. Let's bring in Patrick Moorhead, Moor Insights & Strategy founder, CEO, and chief analyst. Patrick, it's good to talk to you today. Uh, talk to me-- talk me through these moves here. I mean, Intel had a good quarter, the stock down more than 6%. Is this all on the outlook?

PATRICK MOORHEAD: It-- it is all on the outlook. I mean, they-- they crushed the quarter, but it's all about the outlook, and specifically about gross margin, because even revenue seemed to be, uh, in alignment. And, you know, Intel is making these huge capital CapEx investments. And at some point, those start to hit the gross margin line, and that is exactly what's going to happen.

Uh, Intel said they were going to accelerate CapEx. And then Pat came in, said they were going to double down-- CEO Pat Gelsinger said he was going to double down on CapEx. And that's really what you're seeing.

And, you know, I-- I believe that investors are just a little spooked about that, but I think Intel is going to give-- um, they have an investor, uh, conference in February 17th, where they say they're going to give a lot of detail about the future.

- And so for Intel, with what we're watching and how investors are even pricing in, what some of that forecast may look like, what does this business as a whole look like without Mobileye given the plans to spin that off sometime mid-2022, as they've signaled?

PATRICK MOORHEAD: Yeah, so the type of-- well, first of all, Mobileye is a huge opportunity. You know, they're doing 4X the auto revenue of Nvidia, 2X the revenue of-- of Qualcomm in automotive. And-- and it's-- it's a first mover in-- in ADAS. But aside from that, Intel's core business, the markets that they're in, are strong.

Uh, data centers have this insatiable, uh, desire for more computing, whether that's a-- a processor for graphics or even for machine learning. That is not going to stop, uh, any time soon. Now, the interesting point that--

And one thing, quite frankly, I don't think is being factored in at all is Intel is entering some brand new segments, discrete graphics for gaming and workstation and machine learning and AI training. And this has really been at the heart of what Nvidia has been doing, and to a certain extent, uh, what AMD has been in. But this is the first time that Intel will be getting to these brand new markets. None of that is being priced into the future right now.

- Patrick, I want to get back to that-- those concerns around gross margins because Intel has made some pretty splashy headlines over the last year. You've got, uh, groundbreaking in two new fabs over in Arizona. We have the Ohio, uh, factory announcement last week, $20 billion. And then they've got significant investments over in Europe as well. I mean, this is a story that plays out over the next several years that could have huge growth potential for the company. What do you think investors aren't getting?

PATRICK MOORHEAD: Well, I-- I just don't think they have all the details on it, and I think they're just a little bit spooked. The gross margins came in a little bit lower than they had expected, and even their EPS forecast was below what the street was looking for, but-- but this is a long conversation. And I think what Intel needs to do a better job at is explaining exactly when the investments are going to hit, when they start impacting gross margins, which impact EPS. I really think it's about education.

But you do have to fundamentally believe that Intel remaining in IBM is the right thing. And shareholders essentially have-- have given the go ahead. But it's a long-term thing. It takes three years to build one of these mega fabs, uh, out there.

So none of this, if you're a manufacturer of semiconductors, is-- is a-- is a quick change. This is going to be a long-term piece. I feel like in 2023, will be, uh, a milestone for me to see and have more confidence in exactly where Intel is going to be. But what I do realize, if they don't make these investments right now, they're not going to have as bright a future in-- in the future.

So I think it's going to take patience and trust. And it's going to take Intel to lay that out on February 17 at their investor conference.

- Just lastly while we have you as well, you know, thinking about where companies are buying further into, the data center has been discussed heavily by Intel, most recently in-- in yesterday's earnings call, and really lining up that vision for all the services and solutions that we saw in the cloud over the course of, uh, 2020 and 2021. Much of that pulled forward for the-- that cloud businesses that we had seen even among some of their competitors. Now, all the focus is shifting towards the data center. Where can they stand to benefit from some of those data center investments that even the existing portfolio clients, uh, are going to need to make an upgrade perhaps?

PATRICK MOORHEAD: Yeah, so the good news is-- is that the enterprise and the government is finally kicking in. Enterprise and government in the data center, that's been a-- that was a drag. And you saw about a 50% gain this quarter alone. And I think that's good news because that had been a soft spot forever.

My expectation fit in the public cloud, these-- these hyperscalers. And-- and, you know, you nailed it when you talked about, uh, you know, kind of this feast or famine where they buy a bunch of products, uh, put them out there, and-- and then there's a little bit of a-- a drought. I can see within six to nine months that that re-up cycle of the AWSs, of the Azures, of the Google Clouds to where they need to replenish to be able to deliver those consumer and enterprise SaaS services.

- Patrick Moorhead, good to talk to you today, Moor Insights & Strategy Founder CEO and chief analyst there.