Intel Suffers From Weak Demand and Competitive Pressure

Intel Stock at a Glance

• Current Morningstar Fair Value Estimate: $35
• Stock Star Rating: 4 Stars
• Economic Moat Rating: Narrow
• Moat Trend Rating: Negative

Intel Earnings Update

Intel’s (INTC) fourth-quarter results were challenged by weak PC and server demand, competitive pressures from a resurgent AMD, and lingering execution issues culminating in market share loss and margin compression. While we remain positive on Intel’s IDM 2.0 strategy to fix its chipmaking prowess, we believe the firm’s financial results will be under duress until 2024 at the earliest. We lower our fair value estimate to $35 per share from $45 as we incorporate lower expectations for 2023. Shares fell 10% during after-hours as we suspect the market is skeptical Intel will be able to rectify its manufacturing issues. Although shares of narrow-moat Intel are modestly undervalued relative to our updated fair value, we believe narrow-moat AMD ($115 fair value estimate) looks more attractive at current levels given our expectations for strong share gains in the data center CPU market despite tepid macroeconomic conditions.

Fourth-quarter sales fell 28% year over year (when excluding the divested NAND business) to $14 billion. Client computing group, or CCG, sales fell 36% year over year due to continued inventory reductions at OEMs because of a weaker PC demand outlook in consumer and education markets. Data center and AI group, or DCAI, sales fell 33% year over year, due to market share loss to AMD and softer enterprise demand. We believe AMD’s share gains have happened predominantly at cloud customers, which have retained a higher rate of spending than their enterprise counterparts, resulting in a greater negative impact to Intel’s DCAI sales. Gross margins fell 340 basis points to 39% due to lower sales volume and factory utilization.

For 2022, revenue fell 16% (excluding NAND) to $63 billion, with CCG and DCAI down 23% and 15%, respectively. We anticipate another year of double-digit declines in 2023. Management expects first-quarter revenue to be down 40% year over year to $11 billion. The firm reiterated its goal to drive $3 billion in cost savings for the year.