Intel 8% Lower Following Earnings Despite Revenue Beat

Intel's (Nasdaq: INTC) earnings leaked earlier than anticipated reportedly due to a hack. Initially, the stock was 3% higher as the company beat on the top and bottom-line, but the stock was lower following some negative comments on the conference call.

This quarter marks CEO Bob Swan's final quarter, who had been maligned as Intel has lost its leading position in the chip market. It's also been forced to outsource production to competitors. Swan was also Intel's first nontechnical CEO, and upon his anointment, many of the company's technical talent left in protest. Swan is being replaced by former Vmware CEO Pat Gelsinger who does have a technical background and is well-regarded.

Inside the Numbers

In Q4, Intel reported earnings per share of $1.52, versus expectations of $1.10. Revenue also beat at $20 billion vs $17.5 billion expectations. To compare, Intel had revenue of $19.1 billion in Q4 of 2019. adjusted, vs $1.10 expected by Refinitiv consensus estimates.

Another important update is that the company said that it expects its 7-nanometer production to begin in 2023. This issue caused Intel's stock to plummet earlier this year, as it became apparent that it was falling behind its competitors in terms of being the leader in chip development. Many of Intel's major customers like Apple (Nasdaq: AAPL), Amazon (Nasdaq: AMZN), and Microsoft (Nasdaq: MSFT) are developing the own processors.

Due to these issues, Intel is being forced to outsource its production. This was unthinkable a few years ago as Intel's primary differentiator was that it designed and produced its own chips, unlike its competitors.

Stock Price Outlook

By all measures, Intel had strong results. However, the market is a forward-looking mechanism, and the selling is due to anticipation that future earnings will weaken since the company lost its position. Additionally, the market is treating recent earnings strength as transitory due to enhanced demand for PCs and laptops. Another positive which the market shrugged off is a 5% increase in its cash dividend.

On the negative side, forecasts for Q1 were lower than expected and lower than 2019's Q1. Datacenter sales were also down 16% as this is the group most sensitive to the drop-off in Intel's chip quality. So far, Intel is being treated like a "value trap" in which the company looks attractive based on backward-looking financials but less-attractive when taking into the company's trajectory. In contrast, a growth stock looks unattractive based on its financials but could grow into an expensive valuation.