Take a pass on Intel, says Roth

Ongoing challenges in terms of demand as well as inventory have been dogging chip giant Intel Corp (Intel Corp Stock Quote, Charts, News, Analysts, Financials NASDAQ:INTC), as Roth Capital Partners analyst Suji Desilva examined the latest quarterly results for the company in an update to clients on Friday. Desilva maintained a “Neutral” rating on Intel, saying although he’s encouraged by the company’s cost-cutting and foundry efforts, overall growth remains iffy.

Intel shares dropped markedly on Friday after the company reported fourth quarter and full-year 2022 results which featured Q4 revenue down 32 per cent year-over-year to $14.0 billion and full 2022 revenue down 20 per cent to $63.1 million. (All figures in US dollars.)

“Despite the economic and market headwinds, we continued to make good progress on our strategic transformation in Q4, including advancing our product roadmap and improving our operational structure and processes to drive efficiencies while delivering at the low-end of our guided range,” said CEO Pat Gelsinger in a press release.

The quarterly results came in under the consensus expectation, Desilva said, while EPS at $0.10 per share was also below the Street’s forecast at $0.19 per share.

Desilva noted that INTC guided for first quarter 2023 revenue to come in at an 18-25 per cent sequential drop, which was well below the consensus, and that management is expecting the total addressable market for PC’s to decline to the mid-single-digits year-over-year for 2023, although the analyst said Intel is likely to see an even worse decline as customers continue to reduce their chip orders to lean inventory levels.

“INTC guided gross margin to trend below 40 per cent in 1Q23, a level the company has not seen before, reflecting impact of inventory reserves coupled with lower revenue/ utilization,” Desilva wrote.

“Reflecting aggressive customer/channel inventory reductions, INTC guided for a weaker 1H23 with limited visibility near-term. The company, however, continues to execute on manufacturing recovery and plan cost alignment actions,” he wrote.

With the quarterly update, Desilva reworked his estimates and is now calling for Intel to generate 2023 revenue of $50.4 billion (previously $59.6 billion) and EPS of $0.32 per share (previously $1.66 per share). The analyst maintained a 12-month target on INTC of $30.00, which at the time of publication represented a projected return of zero per cent.

“Longer-term, we are broadly encouraged by INTC’s focus on cost reductions and growing foundry efforts. Reflecting limited visibility, INTC also was unable to guide full-year CY23 as is its typical practice. We maintain our Neutral,” Desilva said.