Remember Intel (INTC)? The Nasdaq-listed one-time microchip superstar’s stock plunged nearly 10% in after-hours trading despite marginally beating revenue and earnings per share (EPS) forecasts for the third quarter to 30 September.
Silicon Valley-based Intel announced earnings per share of $1.11 on revenue of $18.3 billion. While these figures were down 22% and 4.6% respectively year-on-year they were a nudge above analyst projections, pitched at $1.10 and $18.2 billion.
But the stock tumbled from $53.90 to an implied $48.85. To put that into perspective, in an era when tech royalty stocks, Apple say, is trading on price to earnings (PE) multiples of 30-plus, and often much higher, Intel now sits on full year 2020 (to end December) PE of 10.
In its heyday (albeit during the dot.com boom), Intel stock traded at nearly $75 on a triple-digit PE.
MORE IS NOT MORE FOR INTEL
The problem for Intel was weaker margins and a lull in its datacentre business.
Datacentre revenue fell 10% year-on-year for the quarter as the pandemic weighed performance in internet of things connectivity and memory chip business, the company said.
Intel has also had production problems to contend with for its higher margin 10 nanometre chips, plus delays to its next generation seven nanometre developments.
So while PC revenue rose 1% on continued notebook strength to support the work-at-home trend as a result of the pandemic, this effectively represents stable lower margin chip volumes versus declines for its higher margin microprocessors.
This led third quarter gross margins to fall from 60.4% a year ago to 54.8%, missing consensus estimates of 56.8%.
DECISIONS BEING QUESTIONED
This leaves Intel facing its worst crisis in at least a decade. The company has been the largest chipmaker for most of the past 30 years by combining the best designs with cutting-edge factories.
But decisions not to close or sell-off fabrication centres and outsource more production to concentrate on design are now being questioned, heaping pressure on chief executive Bob Swan.
Investors can at least take heart from Intel modestly upping full year 2020 revenue and earnings guidance. The company now expects annual revenue growth of 5% to $75.3 billion and earnings of $4.90 per share.
