What Intel’s Disastrous Earnings Tell Us About The Chip Industry And Competitors

What a tragedy.

We’re talking about Intel (INTC) results for the June quarter. Not only did the company deliver a disappointing quarter, but it reset its 2022 guidance even lower, putting its shares under pressure on Friday.

For the current quarter, the chip company now sees earnings of $0.35 per share versus $0.84. It is now guided by third-quarter revenue of $15 billion to $16 billion versus expectations of $18.67 billion. For the full year 2022, earnings per share forecast is now $2.30, down from the previous forecast of $3.60 and consensus of $3.39. In terms of revenue for the year, Intel now expects $65 billion – $68 billion, down from $76 billion and well below $74.4 billion.

What do we make of this?

Some of this can be explained by the weak PC market, which Intel said it sees for the consumer market even though the PC and enterprise market remains strong. This matches the feedback we’ve collected from Microsoft (MSFT), Logitech (LOGI), and Samsung in recent days. In fact, during the June quarter, there were enough data points in the PC market that much of that news was already priced in at chip companies, including our own Advanced Micro Devices (AMD).

In terms of Intel’s data center business, the company now expects to grow more slowly than the overall data center market, which in plain English means that it will continue to lose market share as AMD and Nvidia (NVDA) continue to eat lunch. Comments on cloud and data center spending are still vibrant, and this indicates that both AMD and Nvidia will deliver better-than-expected June quarters. AMD will announce its quarterly results next Monday (August 1) after the market closes.

Turning to Intel’s capital spending, the company lowered its 2022 forecast to $23 billion from its target of $27 billion earlier this year. Despite the reduction, Intel is still spending about $5 billion more than it did last year. At the same time, the CHIPS bill has been passed, which will keep Intel’s capital spending at high levels in 2023 as it adds additional capacity for the foundry.

During the earnings call, Intel discussed its recent win with MediaTek and commented that it is talking with several other fabless chip companies. We’re not surprised by this given the supply chain issues during the pandemic and those with China during the June quarter. However, it remains to be seen how quickly companies like Qualcomm (QCOM), Nvidia, AMD, and others are willing to use Intel’s foundry services. We believe they will be more inclined to use the newly discovered local capacitance from Taiwan Semiconductor (TSM). However, all this upcoming domestic capability is a positive for semi-capital equipment companies, including our own applied materials (AMAT).

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