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Chipmaker Intel (INTC) released its first-quarter outlook that fell short of Wall Street expectations. Shares continued to decline in pre-market trading on Friday, despite the company announcing overall fourth-quarter 2023 earnings with revenue of $15.4 billion and adjusted earnings per share of $0.54. .
Christopher Daenley, head of U.S. semiconductor research at Citi, joins Yahoo Finance to discuss the outlook for Intel’s entire segment.
“If you look at Intel’s core business, PC and server microprocessors, that business is doing well. Everything else… the automotive business, the foundry business, all of that has declined pretty quickly in the first quarter. ” Dainley said. “That’s what caused the big guide to go down.”
For more expert insights and the latest market trends, click here to watch the full episode of Yahoo Finance Live.
Editor’s note: This article was written by luke carberry morgan.
video transcript
Brad Smith: Christopher, I’m glad to be here this morning. Chris, if you think back to what this executive team was saying last night, at the end of the day, it was very different than what we’ve heard from some of the other semiconductor companies during this earnings season, at least early on. It also refers to last season.
Christopher Danley: Yeah. So there are two things happening at Intel. I think the biggest problem is that obviously he doesn’t really cite the “AI products” that are helping companies like NVIDIA, AMD, TSMC, and many others. That will come up later.
But the other thing is that, ironically, the main reason why their guidance was so poor is because, quote-unquote, they haven’t made any progress in “growth.” And in fact, they have a contract. If you look at Intel’s core business, microprocessors for PCs and servers, that business is doing well. Everything else, like programmable logic components, the automotive business, the foundry business, all declined pretty quickly in the first quarter. That’s what makes great people depressed.
Sheena Smith: So, Chris, if you look at the market reaction this way. Do you think the fact that the stock is sold so much in the pre-market stage justifies its move to the downside? Sounds like it.
Christopher Danley: yes. So I’m really glad you asked that question. I received such questions from a number of investors this morning. And I had something to explain. Therefore, there are two classes of investors in the market.
There are aircraft carrier-like mutual funds like Janus and Fidelity that hold a lot of money, but they move very slowly. And I don’t think there’s much interest in Intel at this point. But there are also hedge funds that probably account for half of the semiconductor investments in my group.
And they can literally move inventory in and out in a day. And what we’ve seen in recent months is that Intel stock has skyrocketed because of a lot of interest from hedge funds. But suddenly, when something happens that they don’t like, everyone tries to get out of the house today. And it could be back in stock in a week or a month. But I think today’s volatility is really caused by a lot of hedge funds expecting some pretty great guidance from Intel and not getting that. So they’re going to run for the hills.
Brad Smith: How much do you expect to spend? Intel still needs to make progress just by increasing the capacity it brings online to produce chips.
Christopher Danley: Yeah. That’s a good question. So, historically, spend as a percentage of sales has hovered around 17%. And this goes back about 30 years. Sometimes it reaches 20, sometimes it reaches 15. It will essentially double over the next three to four years.
As a result, depreciation expenses have also increased significantly. This is what they talked about on the phone last night. Depreciation and amortization expenses, which actually weigh on gross profits, will increase by $2 billion this year. It’s scheduled to go up next year as well. And it will go up again the following year.
And I think the big disappointment was not necessarily the revenue forecast, but the gross profit forecast. And I think that’s a direct result of this increased investment, but it’s not something that’s going to go away anytime soon.
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