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Intel earnings: Layoffs and margin pressure could overshadow Mobileye’s IPO


Intel Corporation faces this week with an earnings report notable for the lack of official announcements, a bleak-than-expected PC market and layoffs, which are likely to overshadow the offering. Initial publicity of the Mobileye unit.

Intel
INTC,
+ 0.78%

is expected to report third-quarter earnings after the closing bell on Thursday, after reported that the company was planning a massive layoff close to its earnings announcement. Most recently, that inching closer to being confirmed in a report that CEO Pat Gelsinger told workers via video that “targeted” layoffs were underway. The last time Santa Clara, California-based Intel announced a major layoff was in 2016, when the company cut 12,000 jobs, or 11% of the workforce, on the same day, it reported quarterly earnings.

Gelsinger told workers that “our costs are too high and our margins are too low,” which will again lead investors to focus on Intel’s chronic profit margin problems. Now, this CEO has had to back off last year’s promise that profit margins will remain “Comfortable over 50%” As the profit margin in the previous quarter fell to 44.8%, the profit margin for the third quarter is forecast at 46.5% and forecast annual profit margin for the year to drop to 49%. And in this context, profits for rival Advanced Micro Devices Inc.
AMD,
-0.20%

First time pass 50% and is expected to increase.

Amid all these downward price pressures on several fronts, Susquehanna Financial analyst Christopher Rolland raised a question many have asked: Why didn’t Intel announce it first?

Profit warnings due to the downturn in the consumer PC market have been issued for more than a quarter, as well as worldwide PC shipments expected to fall the most since records were keptmake chip manufacturers like AMD, Nvidia Corp.
NVDA,
+ 1.07%
,
Micron Technology Inc.
MU,
+ 0.34%
,
and Applied Materials Inc.
AMAT,
+ 3.06%

reduced their prospects not only because of weak PC sales but also because extend US restrictions on advanced technology to China.

Read: Analysts agree that PC market is on ‘slopeest’ drop since data started being collected in mid-1990s

Intel hasn’t announced ahead of time, just like last quarter when it posted a major fall short of its own forecasts and analysts’ expectations. Rolland, who has a negative review of Intel, expects revenue to fall short of expectations as “CEO Gelsinger has publicly disclosed weakness.”

“However, we believe Q4 remains at significant risk as our mid-quarter tests worsened towards the end of the quarter,” said Rolland, who now forecasts a decline in PC shipments. 17% year-over-year for 2022. “Due to our dependence on revenue and utilization, we are also reducing our full-year GM estimate to below 49% of their estimate. “

Read: Chip stocks fall to two-year low on more tech, AI ban on China causes further calamity

Either way, investors will want to know if Chief Financial Officer David Zinsner’s forecast for the third quarter is a “financial bottom” for the company.

What are you looking for

Income: Of the 29 analysts surveyed by FactSet, Intel is expected to post adjusted earnings on average of 34 cents per share, compared with Intel’s forecast of 35 cents per share, much lower. compared with the 90 cents/share Street expected when the quarter began, and the $1.71 a share reported for the one-year period. Estimize, a software platform that uses crowdsourcing from hedge fund executives, brokers, buy-side analysts and others, called for adjusted earnings of 46 cents a share. promissory note.

Turnover: Wall Street expects revenue from Intel to be $15.35 billion, according to 29 analysts polled by FactSet, based on Intel’s forecast of about $15 to $16 billion. This is down from the $18.95 billion Street expected at the start of the quarter and the $18.09 billion it reported last year, and will likely mark a fourth-quarter revenue decline. 9 in a row over the same period last year. Estimize is expected to reach $15.43 billion in revenue.

Breaking down by divisions, analysts surveyed by FactSet expect client revenue to hit $7.58 billion; data center and AI team $4.67 billion in revenue; $2.4 billion in “network and edge” revenue; and Mobileye grossed $472.2 million.

Ancient movement: Speaking of a possible ninth consecutive quarter of decline, even if Intel beat expectations – as usual – the stock fell after the company’s previous nine-quarter quarterly earnings report.

In the last quarter of September, Intel’s stock price fell 31%, while the Dow Jones Industrial Average
DJIA,
+ 1.34%

– which counts Intel as a component – fell 7%, the S&P 500
SPX,
+ 1.19%

5% down, tech-heavy Nasdaq Composite
COMP,
+ 0.86%

down 4% and the PHLX . Semiconductor Index
NUMBER X,
+ 0.64%

down nearly 10%.

What are analysts saying?

Bernstein analyst Stacy Rasgon commented that he sees two reasons, “not very encouraging from Intel’s perspective,” as to why the company has gone ahead with a lower-than-expected valuation. for Mobileye
MBLY.

Last week, Mobileye estimated shares in its IPO would cost between $18 and $20, gives the self-driving car tech company a valuation of up to $15.9 billionCoincidentally, almost as much as Intel paid for it Mobileye in 2017 for $15.3 billion in cash. Mobileye files for IPO at the end of September, was reported to be seeking a $30 billion valuation, well below previous estimates of a $50 billion valuation for the company.

“As we all know, high-growth tech stocks have been depressed by a combination of weaker macros and higher ratios, and the IPO market itself has stalled in the past few days,” Rasgon said. recent months,” Rasgon said. “But going ahead with the IPO now, at (sounds like) whatever price they can get it, shows that Intel still believes it’s better to do it now than to wait.”

“And second, Intel will get some cash from the deal (~$3.5 billion in dividends from Mobileye and ~$900 million from the sale of the Moovit asset to them) and they may need the money. the way their business is currently trending,” said Rasgon.

Read: Nvidia, Intel gaming cards go on sale while AMD teases November 3 announcement

Wedbush analyst Matt Bryson, who has an underperforming rating on Intel, asked in a note whether he’s lowered his numbers enough for Q4 and 2023, given the company’s most recent guidance. Intel’s “assumption that the PC landscape is much less bleak (around 10% Y/Y drop)) seems to have materialized. “

Looking at Intel’s data center business, Bryson said he sees a higher risk to his assumptions about a slight increase in fourth-quarter corporate revenue “especially with stock returns.” AMD [that] also put pressure on Intel sales.”

“And looking into the coming year, we have the same question in the face of the macro difficulties and our belief that AMD could even see an accelerated market share shift in the face of this crisis,” said Bryson. Intel had trouble with Sapphire Rapids.”

Of the 36 Intel analysts, seven have a buy rating on the stock, 20 have a hold, and nine have a sell rating, along with an average target price of $33.58, down from with a previous quarter of $47.26, according to FactSet data.

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