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Intel shares fall amid slower PC sales, supply constraints

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Matt Bryson, Wedbush SVP, Equity Research, discusses Intel Q3 earnings beat and weak future outlook amid the ongoing chip shortage.

Video Transcript

- I just feel like if you're a believer in the long term strategy, I'm not sure necessarily if today's report changes any idea or confidence you might have in Pat Gelsinger to right the ship.

- Yeah, let's put that question to our guests here. Matt Bryson is Wedbush SVP, Equity Research. And Matt, you know, I want to pick up on that point Zack made. Because that was my reaction. Which was to say that $25 to $28 billion expected in terms of Capex next year. I mean, they are undergoing a huge change here of building out these foundries. Was this just an issue of not managing expectations? Or do you think that the declines we're seeing today are justified?

MATT BRYSON: Well, I think it's a couple of things. I think that certainly when you look at the sell side, we had not adjusted our numbers low enough. And so, in that sense, expectations weren't managed even if you knew that they were going to have to be these significant expenses ahead of us. I think that that's now behind Intel. Or at least to some extent.

I think the concern that I have now is their numbers moving forward. So they're seeing pressure from AMD on share. They're seeing former customers move to make their own chips. Like Apple, Amazon, we heard that from Alibaba earlier. And they've also told us that revenue is going to be relatively stable next year. Even in an environment where they're losing share and PCs probably aren't quite as strong.

And then they've also told us that beyond next year they're going to see 10% to 12% growth. And I think the issue is believing that growth story at the same time that you're swallowing these big expenses that weren't public before. I think all of that plus the slightly disappointing number in data center, that's what created the disappointment.

- You do mention a good point there when we talk about Amazon and Microsoft moving in to producing chips for themselves. Because we did see the data center business revenues there dropped 20% when you look at what's come from a lot of those cloud service providers. And I wonder if there is the thought that all of this spending-- all the spending is good if you can hold up on the idea that all your customers are still going to be there on the other side. I wonder how much truth there might be in the idea that Intel spends all this money and then doesn't see the same demand when those are up and running, those fabs are up and running, to really meet, I guess, if there is decay in demand.

MATT BRYSON: I think that's exactly it. They are chasing a moving target. So you have AMD, and AMD is not standing still. You have NVDA, again, two companies who have CEOs who have both executed consistently. And so you're trying to catch these companies that are executing. And the right thing to do is to go and invest. The problem is that you get to the end of this year-- and because cycles are so long in this business in terms of new products, you're still really not seeing the products the Pat Gelsinger is bringing the market.

Really his products come to market in '24 or '25. And so even when you get to the end of '22, you may not have a clear view on whether Intel's going to succeed or not. What you will know is that they've spent a bunch of money.

- Also, I mean that doesn't sound very promising at least for where shares are likely to move in the medium term. Do you think it's going to continue to be under pressure because of those concerns around expenses? I mean, supply shortages, this is something Pat Gelsinger has talked about before. He has said that he expects it to last well into potential the early part of 2023. That's already been messaged. What do you think is going to continue to weigh on the stock, then?

MATT BRYSON: I mean, it's in part supply shortages. I think that starts to get better in 2022. Simply Intel's customers, whether they're building PCs or servers, they're not going to buy an Intel processor if they can't get a power management chip to build that product. And so that should start to get better through next year. But you still have competitive share loss. You still have a world where those former customers are looking at building their own chips. And so I just see that as being an ongoing struggle moving forward. That it's a bit hard right now, as I was saying, to understand exactly what the competitive dynamic looks like in 2023, in 2024. When some of these new products that Intel's talking about, some of these new manufacturing processes, finally come into play.

- Matt Bryson, Wedbush's SVP of equity research. It's good to get your insight today. Appreciate you stopping by.