Warning: Slow recovery, both revenue and profit guidance for Intel in the second quarter fall short, dropping more than 9% after hours｜Financial Report Insights

The recent financial report shows that Intel, facing weak demand in the data center and personal computer (PC) markets, and lagging behind in the field of artificial intelligence (AI), will not find it easy to regain its chip dominance. The recovery process may be slower than Wall Street expected.

In the first quarter of this year, Intel exceeded analysts' expectations in terms of sales revenue and profit, but the guidance for the second quarter was below expectations, sounding the alarm. This implies that Intel CEO Pat Gelsinger's efforts to revitalize the company may take longer and require greater investment.

After the financial report performance and guidance were announced, Intel's stock price plummeted nearly 1.8% in after-hours trading on Wednesday, with a post-market decline of over 9% at one point, which later narrowed but still dropped by over 8%.

After Intel's stock price plunged in after-hours trading, some netizens commented on social media X that in the not too distant future, Micron Technology's market value may surpass Intel's, which is unbelievable, suggesting that commodity chips will outperform logic chips.

Some netizens believe that Intel has provided a good example of a value trap in every investment common sense class. Whenever Intel is "very cheap," looking back at past TTM indicators always seems great.

Some netizens cited a chart showing the top 100 market values of US stocks related to free cash flow, indicating that Intel has already burned through most of its cash.

In the first quarter, revenue, profit, and gross margin were all higher than expected, while the guidance for the second quarter was below expectations.

After the market closed on Thursday, April 25th, Intel announced:

• Intel's revenue in the first quarter increased by 9% year-on-year to $12.72 billion, in line with its own guidance range of $12.2 billion to $13.2 billion.
• Adjusted earnings per share (EPS) in the first quarter, excluding NAAP, were $0.18, in line with Intel's guidance and analysts' expectations of $0.13, compared to a loss of $0.20 per share in the same period last year.
• The gross margin indicator reflecting manufacturing efficiency in the first quarter was 45.1%, higher than Intel's guidance of 43.5% and analysts' expectations of 44.5%In terms of performance guidance, following a first-quarter guidance that fell far short of expectations, Intel's second-quarter guidance provided this time is once again below expectations.

Intel expects:

• Revenue in the second quarter to be between $12.5 billion and $13.5 billion, with the entire guidance range below analysts' expectations of $13.63 billion.
• Adjusted EPS in the second quarter to be $0.2, compared to analysts' expectation of $0.24.
• Intel forecasts a gross margin of 43.5%, lower than analysts' expectation of 45.3%, significantly below Intel's historical level of over 60%.

Intel's Chief Financial Officer (CFO) David Zinsner stated that first-quarter revenue met the company's expectations, and the new foundry operating model has improved transparency and accountability, driving better decision-making across the entire enterprise. The company expects to achieve year-over-year revenue growth and non-GAAP EPS growth in the 2024 fiscal year, with a full-year gross margin increase of approximately 200 basis points.

Zinsner mentioned that Intel has also made progress in cost control, and expects its manufacturing business to achieve breakeven in the "coming years".

Foundry outsourcing business reports first-quarter loss of $2.5 billion, nearly doubling quarter-on-quarter

The first quarter marks the first quarter of financial reporting format change for Intel. In the quarterly report, Intel for the first time separately accounted for its chip manufacturing outsourcing business - Intel Foundry Services (IFS) - combining it with foundry technology development, manufacturing, and supply chain under Intel Foundry for separate revenue and profit/loss accounting.

In the first quarter, Intel also integrated other major businesses into two new business segments. The first segment combines PC chip business client computing group (CCG), data center and AI (DCAI), and network and edge domain (NEX) into "Intel Products", while the second segment merges Intel's previously named programmable solutions business Altera, autonomous driving technology company Mobileye, and other startups into "Other".

The financial report shows that:

• Intel's largest revenue source, the client computing group (CCG), saw a 31% year-on-year revenue growth in the first quarter to $7.5 billion, marking over 30% growth for two consecutive quarters, indicating a bottoming out and recovery in the PC market.
• The second-largest business, data center and AI (DCAI), generated $3 billion in revenue in the first quarter, a 5% year-on-year growth, reversing the 7.4% decline in the fourth quarter of last year.
• Network and edge domain (NEX) recorded $1.4 billion in revenue in the first quarter, an 8% year-on-year decline, significantly easing from the 28.6% decline in the fourth quarter of last year.
• The foundry business generated $11.9 billion in revenue in the first quarter, a 17% year-on-year growth, while Intel Foundry Services (IFS) saw a 63.5% year-on-year revenue growth in the fourth quarter of last year
• All other businesses saw a year-on-year revenue decline of 46% to $775 million in the first quarter, with Altera's first-quarter revenue down 58% year-on-year to $342 million; Mobileye's first-quarter revenue down 48% year-on-year to $239 million, while it saw a 12.7% year-on-year growth in the fourth quarter of last year.

Earlier this month, Intel disclosed for the first time the financials of its foundry business, which saw its operating loss increase by 34.6% to $7 billion compared to 2022, and revenue down 31.2% to $18.9 billion year-on-year. At that time, Intel projected that the operating loss of the foundry business would peak this year and achieve a balance of profit and loss around 2027.

The financial report released this Thursday showed that the foundry business incurred a $2.5 billion loss in the first quarter, nearly double the $1.3 billion loss in the fourth quarter of last year, with an operating profit margin of -56.6% in the first quarter, far exceeding the 25.5% in the fourth quarter of last year.

CEO: Confident in consecutive quarterly growth this year, Gaudi AI chip's revenue may exceed $500 million this year

Despite the poor guidance for this quarter, Intel's management is optimistic about the second half of the year. They stated that they are confident in the plans for quarter-on-quarter revenue growth in 2024 and are on track to regain leadership in the processor market by 2025. CEO Gelsinger said that with the mass production of Intel 3 process, Intel is producing cutting-edge semiconductor technology in the United States for the first time in nearly a decade. With the development of the foundry business, Intel is expected to regain a leading position in process technology next year.

Gelsinger said the company is confident in its plans to drive consecutive quarterly growth throughout the year, as we have accelerated the pace of artificial intelligence (AI) solutions and maintained a disciplined focus on execution and operations in a vibrant market to create value for shareholders.

Earlier this month, Intel unveiled the new generation AI chip Gaudi 3, claiming significantly better performance than Nvidia's flagship AI chip H100. Intel stated that Gaudi 3 can reduce the training time of Llama2 and GPT-3 models by an average of 50% compared to H100, increase the inference throughput of Llama and Falcon models by an average of 50% compared to H100, and improve the inference speed by 30% compared to Nvidia's H200After announcing the financial report this Thursday, Kissinger revealed that Gaudi AI chip product line's revenue for this year may exceed $500 million. He said, "What excites me the most is enterprise customers. I believe the ultimate monetization of AI is when it starts to change enterprises."