By Senad Karaahmetovic
Shares of Intel Corp. (NASDAQ:INTC) are down almost 10% in premarket trading after the chipmaker reported Q2 earnings that missed analyst expectations and slashed its full-year outlook for adjusted revenue, EPS, and gross margin.
Intel reported Q2 adjusted EPS of 29c, significantly below the consensus projection of 69c per share. The company reported adjusted revenue of $15.32 billion, missing the consensus estimates of $17.96 billion.
The adjusted gross margin stood at 44.8%, short of the analyst consensus of 51%. The adjusted operating margin was reported at 9.2%, while analysts were looking for 18.7%.
Intel expects Q3 adjusted revenue in the range of $15 billion to $16 billion, also below the analyst estimates of $18.7 billion. The company expects adjusted EPS to be around 35c in the third quarter, a far cry from the analyst expectations of 82c per share. The Q3 adjusted gross margin is estimated to be 46.5%, while analysts were projecting 51.4%.
On a full-year basis, the chipmaker expects adjusted revenue in the range of $65 billion to $68 billion, down from the previous forecast of $76 billion, and below the consensus of $74.76 billion.
Intel expects FY adjusted EPS of $2.30, down from the $3.60 it previously guided, while analysts were expecting $3.39 per share. The company estimates FY gross margin of about 49%, down from 52%, and compared to analyst expectations of 51.8%.
Intel CEO Pat Gelsinger said this quarter was “below standards“ and the company “must do better.”
“We are taking necessary actions to manage through the current environment, including accelerating the deployment of our smart capital strategy, while reiterating our prior full-year adjusted free cash flow guidance and returning gross margins to our target range by the fourth quarter,” said Intel CFO David Zinsner.
A closely followed Rosenblatt semi analyst reiterated a Sell rating and cut the price target to $30 from $40. He called the earnings report an “unmitigated disaster.”
“Where do we begin on a generational miss that for some reason was not negatively pre-announced (a question not answered on the live earnings call)? The single most important dynamic to focus on (beyond the headline macro, inventory, and recession issues), is the 25% sequential miss in data center (DCAI),” the analyst told clients in a note.
The analyst also sees positives for AMD (NASDAQ:AMD) from Intel’s report as he believes the former can “at least quadrupling its [data center] share from ~10% in 2021 in the next couple of years.”
“We believe estimates will be all over the place for 2023 (down for sure), and that they “kitchen sinked” 2022, so it is ok to now believe management. We think there is more downside from current levels,” the analyst concluded.
A Baird analyst cut the rating on Intel stock to Neutral as he believes “PC inventories are too high for quick recovery.”
“Intel's renewed competitiveness in PCs is more than offset by PC inventory cuts, worse than our recent estimate cut embedded. We are increasingly concerned 20+ year-high inventory days in the PC supply chain (chart in the Details section of this note) could take quarters to unfold, given what we think are structural changes in PC consumer consumption patterns, combined with a seasonally weak first half which would continue to pressure Intel's utilization rates and gross margin recovery,” the analyst wrote.
A Barclays analyst reiterated an Underweight rating on Intel on the “large reset” quarter, which may still not be enough.
“The substantial miss smells like the clearing the decks moment that some investors have been looking for but we aren’t even sure if estimates are reset enough and we struggle with what exactly the bull case is with the continued roadmap issues and such a disconnect between the company’s optimism and the current reality,” the analyst added.
Susquehanna analysts also downgraded Intel, cutting the rating to Negative from Neutral.