Intel's (Nasdaq: INTC) saga and struggles will be certainly studied by historians and business students in the future. In an environment of the extraordinary demand for chips and strength in semiconductor stocks, Intel has become a laggard. This was unthinkable a decade ago when Intel was the leader in terms of the newest and most advanced designs. It also had a unique advantage in that it was able to manufacture its own chips.
Now, the company has fallen behind its competitors, including AMD (NYSE: AMD), which was always seen as Intel's little brother. AMD chips tended to be cheaper and less powerful than Intel. However, this has now flipped, and Intel's chips are behind AMD. Further, Intel has had to outsource the production of its chips to other companies which were also unthinkable given that this was part of Intel's DNA for so long.
Inside the Numbers
Intel's Q1 earnings also provide more insight into its struggles as it reported flat revenues and a 1% drop in earnings despite the favorable environment. It reported $1.39 in earnings per share which came in higher than estimates of $1.15 per share. Revenue was $18.6 billion, topping expectations of $17.9 billion.
The quarter also marked CEO Pat Gelsinger's first earnings report following the disastrous reign of Bob Swan, who many blame for the company's struggles.
In terms of guidance, Intel expects $17.8 billion in revenue which was slightly higher than expectations of $17.6 billion. However, EPS fell short of estimates at $1.05 vs $1.09. Earlier, the company had announced plans to invest $20 billion in new manufacturing plants and a new foundry to produce chips for other companies.
Last month, Intel said it was expecting earnings of $4 per share and revenue of $72 billion for the full year of 2021. Intel raised that guidance on Thursday to earnings of $4.60 per share as well as sales guidance to $72.5 billion.
PC sales were one source of strength as tech spending was strong amid the pandemic and stimulus checks. This unit's sales were 54% higher with 38% higher volumes. Client computing came in at $10.6 billion an increase from last year's $10.6 billion. This unit accounts for 59% of its revenue.
Yet, many are less sanguine about these results as demand is falling for its higher-end chips but remains strong for less expensive chips used in tablets and Chromebooks. Apple (Nasdaq: AAPL) is building its own chips for its newer Macs.
The biggest worry is that data center sales will start dropping as this group is most hungry for the highest power and performance chips. Sales came in at $7 billion vs $5.6 billion. Corporate managers are slow to change purchasing decisions, but on the margins, there already are signs of them preferring Nvidia (NASDAQ: NVDA) or AMD.
Stock Price Outlook
Intel is quite attractive from a valuation basis. Yet, it also has all the makings of a classic "value trap". Investors should only buy the stock if they are confident in the company's turnaround plans. If it can regain its perch, then the company could do well. However, current indications are that it's going to have to compete on the lower-end, where it will have much less pricing power and profits.