Intel (NYSE: INTC) is trading sharply lower in US premarket price action today after missing both topline and bottomline estimates for the fourth quarter of 2022. Here are the key takeaways from the company’s earnings.
Intel reported revenues of $14.04 billion in the fourth quarter of 2022. The revenues fell 32% YoY and were below the $14.45 billion that analysts were expecting. In the full year, its revenues fell 20% to $63.1 billion.
Intel posted a GAAP loss in Q4 2022
Intel posted an adjusted EPS of 10 cents which was half of what analysts were expecting. It posted a GAAP loss of $0.16 in the quarter. The company’s earnings missed not only analysts’ estimates but also its own guidance.
During the earnings call, Intel CEO Pat Gelsinger said, “we readily admit our results and our Q1 guidance are below what we expect of ourselves. We are working diligently to address the challenges brought on by current demand trends and remain confident in our long-term plans and trajectory.”
Intel guidance was also lower than expected
If the Q4 earnings miss wasn’t enough, Intel’s guidance for the first quarter of 2023 also spooked investors. It expects to post revenues between $10.5-$11.5 billion which is way below the nearly $14 billion that analysts expected. The company forecast an adjusted net loss of 15 cents in the quarter while analysts were expecting an adjusted EPS of 24 cents.
The company sounded bearish on its outlook, at least in the first half of the year. Gelsinger said, “We expect macro weakness to persist at least through the first half of the year with the possibility of second half improvements.”
Intel also did not provide guidance beyond the first quarter which Gelsinger said was due to the “uncertainty in the current environment.”
PC sales crashed in 2022
PC sales crashed in 2022 and the inventory glut only made things worse. Intel now expects global PC sales to be at the lower end of its previous prediction of 270-295 million units. Intel’s sales have also been negatively impacted as PC makers have looked to clear inventory.
Gelsinger said, “Near term, the PC ecosystem continues to deplete inventory. For all of calendar year ’22, our sell-in was roughly 10% below consumption with Q4 under shipping meaningfully higher than full year, and Q1 expected to grow again to represent the most significant inventory digestion in our data set.”
While he said that the situation would eventually reverse, he added that predicting a timeline is tough.
Intel reported a fall in gross margins
In Q4 2022, Intel reported a GAAP gross profit margin of 39.2% as compared to 53.6% in the corresponding quarter last year. Among other lower sales have taken a toll on the company’s margins due to the underutilization of existing plants. Last year, Intel said that it would target a gross profit margin between 51-53%.
In the first quarter of 2023, Intel expects its gross profit margins at 34.1%. It said that due to the underutilization of plants, its gross profit would be hit by four percentage points in the quarter.
INTC is working to cut costs
Deutsche Bank analyst Ross Seymore questioned INTC on how it plans to deliver on its gross profit guidance. Replying to the question, Intel’s CFO Dave Zinsner said, “revenue is the most significant impact to gross margins.” He expects things to improve once the PC industry’s inventory destocking ends.
Intel is also cutting costs and intends to lower the base by $3 billion in 2023. Commenting on the gross profit margin guidance, Zinsner added, “In addition to that, we have a number of initiatives underway to improve gross margins, and we’re well underway. When you look at the $3 billion reduction that we talked about for ’23, $1 billion of that is in cost of sales, and we’re well underway on our way to getting that $1 billion.”
Intel has a good dividend yield
Intel has a dividend yield of almost 5%. The company posted negative free cash flows last year. Given the company’s recent financial performance, markets have been concerned about the sustainability of the dividend especially as INTC continues to invest in new plants. Including in the US.
Responding to an analyst question on dividends, Gelsinger said, “I’d just say the board, management, we take a very disciplined approach to the capital allocation strategy and we’re going to remain committed to being very prudent around how we allocate capital for the owners and we are committed to maintaining a competitive dividend.”
Mobileye revenues hit a record high
Last year, Intel listed its self-driving subsidiary Mobileye. Mobileye’s IPO valuation was lower than what Intel was previously said to be targeting. Nonetheless, the IPO fared well and closed with gains on the first day. It was among the rare IPOs of 2022 which delivered positive returns for investors.
Mobileye delivered record revenues in Q4 2022 and forecasted another bumper year. While Intel shares are trading sharply lower today, Mobileye stock is higher.
Analyst reacts to Intel earnings
Reacting to Intel earnings, Bernstein senior analyst Stacy Rasgon who has an underperform rating on the stock, said “I don’t really know what to say.” He added, “I don’t think I’ve ever seen anything quite like this before. This is something special.”
Rasgon said that the company’s guidance was the most disappointing aspect of the earnings. He added that the company’s forecasted revenues in the first quarter would be the lowest since about 2010.
Notably, Intel made some accounting changes due to which its depreciation expense in 2023 would be lower by $4.2 billion. Rasgon pointed out that the 39% gross profit margin in Q4 is “even higher than it looks” and said that if not for the accounting change it would have been lower by 3 percentage points.
Rasgon also said that the company’s financial performance is also due to execution issues. He pointed out that INTC’s headcount has expanded 20% since Gelsinger took over.
Rasgon said that Intel hasn’t had a good earnings release “in a while” and the Q4 2022 miss looks like the company “went off the cliff.”