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Intel plummets on slower PC sales, supply constraints

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Yahoo Finance’s Julie Hyman, Brian Cheung, and Brian Sozzi break down Intel’s latest earnings report.

Video Transcript

JULIE HYMAN: But we do have to start with yet another earnings report, and this one from Intel. And interestingly, as we talk all about the supply chain here and Intel's numbers beat, really, Intel's story is about building up the supply chain over the long term, perhaps too long term in the eyes of investors, because the company, really, here is investing and expanding its capacity. And that's something that, for right now, appears to be a challenge.

The company says gross margin is going to be 51% to 53% in the next two years before it starts to go back up to more of a 60%-to-65% range. Brian Sozzi, this is not something that-- investors don't seem to be feeling too patient.

BRIAN SOZZI: No. Really, I think two things here on Intel, why you're seeing the stock decline. One, data center sales-- always a closely watched business for Intel. Those sales came in a little light, up about 10% on the earnings call. The guidance for data center sales I don't think inspired a lot of confidence amongst those that have bought into the Intel turnaround, secondarily.

Also on the earnings call last night, the company coming out with some mixed guidance, looking for $74 billion in sales next year. That was in line with some estimates. But the profit margin, the gross profit margin outlook for the business, 51%-to-53% range over the next two years. The Street was at about 57%.

So the biggest takeaway here with that is that CEO Pat Gelsinger is investing very aggressively to rebuild this company, make them-- put them back in the leadership position in terms of chips, by 2025. And I think the Street is realizing today those efforts will come at a near-term cost.

BRIAN CHEUNG: Yeah, I think a big story for them, too, is just Apple, right? Them shifting to their own M1 chips has been a massive story for Intel, and we'll see if Intel's kind of counteract to that, which is their Alder Lake-- that's their brand of chips that they hope will kind of fill the hole in sales for mobile- and desktop-focused needs-- can really kind of help them as part of that transformation that Pat Gelsinger is trying to engineer here.

Now, for what it's worth, the chip stocks broadly-- not just Intel-- were much-loved stocks at the beginning of this year, right? Consider Intel-- yes, right now, it's down about 10% pre-market. Ouch. But it was up as high as $68-- I believe that was in April of this year, and it was the same story for other chipmakers as well.

When you take a look at Micron, for example-- also having a great first four months of the year, but the supply chain issues have remained a story that has dogged not just Intel, but all of these stocks as well. Again, Micron's not on the same earnings timing calendar as Intel is. We won't hear from them next until, I believe, December 22. But in the meantime, I think the big story with the supply-chain issues continuing to last is really going to be weighing on these stocks for more quarters to come.

BRIAN SOZZI: Yeah, so the pressure-- a lot of pressure on Intel there, Brian and Julie. But on the flip side of it, look what we're seeing here in the pre-market in AMD and Nvidia. Both those stocks are rising slightly, likely as investors think those two chipmakers will remain dominant there in the near term. AMD has been a top trending ticker on the Yahoo Finance platform, really since I woke up on Monday morning.

JULIE HYMAN: Yeah. And of course, those companies are not foundries, right? Intel's still trying to keep-- to keep a hold in the foundry business. So perhaps the companies that are not as much in the actual physical making of chips are going to be at an advantage here.

What strikes me, though, about this whole story is, the narrative this whole year has been that we need more supply chain domestically, or we need more reliable supply chains, with whatever we're talking about, but particularly with the chip business. And here is Intel with an effort to try to do that, and it sort of tells you why we have not traditionally seen that longer-term investment, necessarily, on the part of companies-- although you could argue with Intel, perhaps it's coming a little bit late. So that's the issue here. I don't know what you think about that, Brian Sozzi.

BRIAN SOZZI: Look, Pat Gelsinger, CEO, came in there earlier this year-- a lot of energy, a lot of excitement. I think he has Intel going on the right track. I just think that the Street forgot a lot of these things that he wants to do, whether it's building two new giant foundries out in Arizona at a $20 billion cost-- these things cost money. He is trying to rebuild Intel from the ground floor, and it's going to take some time. But the investments he is making do appear to make a lot of sense. The Street just has to get used to them.