Intel's Q4 Results And Q1 Guidance Show It Is Stumbling In The AI Race

With its latest quarterly results published on Friday, Intel Corporation INTC showed it is stumbling in the AI race. Intel issued a weaker than expected outlook for the first quarter of 2024. The question on everyone’s minds is if Advanced Micro Devices Inc AMD stock will follow its lead and tank after its earnings report. Given weaknesses in several of its key areas, AMD is also likely to provide some disappointing guidance for the undergoing quarter. After trading on Tuesday, heading into the report, AMD shares were 3% off. With its fourth quarter results, Intel showed its turnaround is going as planned, but with its first quarter guidance was a warning for the tech sector. 

Solid Fourth Quarter Results

For the quarter ended in December, Intel reported revenue of $15.4 billion that topped LSEG’s estimate of $15.15 billion. Adjusted earnings per share of 54 cents, also topped 45 cents that LSEG expected. Intel made a net income of $2.7 billion, or 63 cents per share, improving from last year’s comparable quarter when it made a net loss of $700 million, or 16 cents per share.

Its largest division, the Client Computing group that covers laptop and PC processor chips started showing signs of growth with sales rising 33% to $8.8 billion. The demand for PC chips has normalized and therefore, gaming and commercial sales were strong. 

Intel Foundry Services which involves making chips for other companies, remains nascent. It reported revenue grew 63% to $291 million.

Trouble On The AI Front

However, its second-biggest division, Data Center and AI, that covers CPUs and GPUs, reported a sales decline 10% to $4 billion. Network and Edge department, which sells parts for carriers and networking, also reported a 24% sales decline to $1.5 billion. But this decline of the Data Center and Network and Edge divisions is concerning due to potential share losses to Nvidia Corporation NVDA and AMD.

A Lower-Than-Expected Guidance

Intel guided for adjusted earnings per share of 13 cents with sales in the range between $12.2 billion and $13.2 billion, both coming short of 33 cents per share and revenue of $14.15 billion that LSEG estimated. On a GAAP basis, Intel guided for fiscal first-quarter net loss of 25 cents per share. Also, Intel is expecting its AI division, the Data Center business, to decline in double-digit percentages in the first quarter compared to the fourth quarter.

Progress Is Being Made But Intel Has A Long Way To Go

Intel continues its execution of its five-year plan implemented by Gelsinger, who took over the chipmaker in 2021. It wants to catch up to Taiwan Semiconductor Manufacturing Company Limited TSM in its ability to offer manufacturing services to other companies, while also improving its own branded chips. Although its market cap puts it below Nvidia and AMD, Gartner estimates that Intel is the largest semiconductor maker by revenue. Gelsinger closed the report with remark that with its latest quarter, Intel closed a year of tremendous progress on its transformative journey. 

Last year, Intel cut $3 billion in costs, protecting its margin as its area of strength, as it spun off or sold five business lines. With its latest results, Intel closed off the year on a good note, continuing the positive trend with which it entered 2023, thanks to its diverse business model. But Intel is now at a critical turning point as this year, it needs to deliver on the promised rebound.

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