Intel stock plunges on weak guidance, AMD and TSM stocks gain momentum

Yahoo Finance Live anchors discuss the decline in stock for Intel.

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BRIAN SOZZI: Intel posted shocking guidance on the earnings release last night that stunned investors and sent the stock plunging. The legendary tech company also missed Wall Street's expectations for the fourth quarter with its forecast pointing to more trouble ahead. And I think if you roll back the tape to how we discussed Intel three months ago, we will have used the same language. Just wow.

And it wasn't just the weakness in the quarter, the company operating, just really missing on earnings. There was also this outlook and this sense coming off this earnings call, that things are not gonna get better for Intel this current quarter, the next quarter, or maybe any quarter this year. And it just, I think, signifies just the continued struggle-- struggles and the transformation that Pat Gelsinger has to drive here to catch up to the likes of AMD, Nvidia, you name it.

BRAD SMITH: Yeah break out the mullet wigs, if you will, because that was certainly talked about on the earnings call. And of course, this is the mullet trade that we talked about with Jefferies analyst Brent Thill once before and this kind of business in the front, party in the back.

But it's a big question for Intel because there are other factors that are impacting them a little bit more outsized than the rest of the market, which we'll break down. But what they said on the call is that they're expecting more positive expectation for the second half of the year. And some of that is revolving around a recovery in China, as well. But in the near term, profit margins-- or, excuse me, those gross margins of 39%, well off of what investors had come to expect for almost a decade of roughly 60% in that same category.

JULIE HYMAN: It might be coming. But they were so uncertain that second half recovery is coming, they didn't even give a forecast, right? And I think you really have to parse Gelsinger's language here. He said, the possibility of second half improvements.

There is not really any optimism baked into this. And the other interesting thing that caught my eye from the call, the head of investor relations saying that the first quarter is gonna be the most significant inventory decline in our customers that we've seen in recent history. And that has to do, especially with the PC business. And the company said, PC sales this year are gonna be at the low end of their forecast. But also, you and I were talking about this morning, Sozz, the data center business, which had been a growth driver for the company, is also not doing great.

BRIAN SOZZI: Yeah, data center, a key margin driving or a margin driving segment for Intel. And they continue to lose market share to the likes of an AMD. And I think this is gonna be another just turn around or transformation here for Intel. And they've acknowledged that they may not gain leadership in the chip space until 2025. So what happens in between there?

Now, there is one common-- I'm not seeing it talked about. But they mentioned this on the earnings call last and. I think it was Pat. Talking about they're looking at other value creating initiatives over at Intel. That definitely rose my spidey sense. Unclear what that actually entails but is it more cost-cutting? This is a company that just three months ago outlined $10 billion in cost cuts through 2025. So it's unclear to me what else could be under the umbrella.

BRAD SMITH: Yeah, in terms of initiatives, they mentioned some of the initiatives that are underway trying to improve the gross margins. $3 billion in reductions that they had talked about for 2023. And $1 billion of that is in the cost of sales. So that could parse back to or at least relate back to that cost-- that cost of sales or that headcount reduction that you were talking about, as well.

BRIAN SOZZI: And I'll just quickly add here, too, before we go on to another angle of this. I just don't think this is Pat's issue, per se. I think this reflects really decades of just mismanagement at Intel. Now, we have deliver--

JULIE HYMAN: Well, we're gonna talk about-- can we talk-- let's pivot for a minute, OK? As Intel does continue to stumble and warn of more trouble ahead, some of its rivals in the semiconductor space are picking up speed. Two big winners off of Intel's market share loss is Taiwan Semiconductor an AMD, both who have been taking business away from Intel quarter after quarter.

Now, let's talk about why that has been happening because every chipmaker, right, is suffering from these macro headwinds that we've talked about, including AMD and TSM to some degree. Intel seems to be suffering the most. And that gets to what you're talking about, Sozz, which is what is different? What are some of the missteps that Intel has made that have brought us to this point?

BRIAN SOZZI: It's something as simple as-- well, it's two different things. First, AMD has been a beast over the past decade, especially under CEO Dr. Lisa Su. Nvidia has been a beast under Jensen Huang. And Intel, I go back to when Bob Swan was leading before Pat and leaders before that, I mean, even went so far as they removed, I believe, key performance indicators. You essentially had executives, not just driving accountability throughout the organization. And then over time that really helped them or led to them losing market share and putting out really best-in-class products here.

So Pat was brought in, I believe, over two years ago to help turn this thing around. And a transformation of an iconic manufacturer like this does not happen overnight. So just to hear Intel say 2025 is when they become a leader again and compete with an AMD and its various other competitors, I think is very telling. It takes a while to turn a ship like this around.

BRAD SMITH: Right, and it's gonna have to come on more spending, which is gonna compress margin even more. When they enter into this, what, $30 billion-- multibillion dollar partnership, not just with Brookfield but other partners as well to try and bring up their foundry services, to try to be able to produce and bring on online more capacity, that's more money out the door for Intel.

And then where does that continue to have to move forward? They've got to continue to source materials to bring into those different operations. And that is a five-year lead time at least, by the time you not just break ground, open up the capacity, and then additionally start to ship out to partners, and then investors start to recognize that.

And so I think investors are trying to, as best they can, get ahead of this wave of spending that Intel is going to have to do in the near term. That makes some of the other players more viable, as investment opportunities perhaps. And that's why you, see over the past five years, an AMD soaring by about 500% in its stock price and its share value, while Intel over the past five years is down by about 34%.

JULIE HYMAN: Well, it also illustrates why Intel has so much work to do to catch up with it. I mean, because all AMD needs to do is keep doing what it's been doing. Intel needs to really get a big step up here. And I don't think that there's-- from an execution perspective, it doesn't seem like the likes of an AMD or some of the other chipmakers are wavering, even though obviously we are in where we are in this glut environment for the chip industry.

BRIAN SOZZI: Right, let's see. What AMD unveiled at CES a couple of weeks ago is incredibly impressive and it is likely to keep AMD as a market share gainer.