Answers from Intel Corp. (INTC) on a number of macro and management issues are hotly anticipated from this evening's December quarter report.
Shares of the chipmaker have charted positively ahead of the earnings release after positive peer reports, but the world's largest semiconductor player are still pertinent in the minds of investors and analysts.
"As we head into earnings, negative data points abound along with a broader sense of uncertainty," BMO Capital Markets analyst Ambrish Srivastava warned. "Broadly speaking, there is an anticipation of March quarter guidance that is likely going to be weaker than what normal seasonality would suggest."
Against this backdrop, Intel emerges with unique issues adding to the uncertainty.
Marching Against the Macro
Along with much of the industry, Intel is confronted with a confluence of macroeconomic and cyclical factors.
Pessimistically, analysts have indicated that even Intel's insulated status as the semiconductor sector leader won't be able to fully counteract the risks present.
"With the semiconductor industry facing a number of headwinds, including a slowing Chinese economy, soft smartphone sales, softening auto demand, slowing hyperscale demand, a lingering government shutdown, and ongoing trade war uncertainty, Intel has remained in a strong position relative to peers, with its own supply shortages likely insulating it from headwinds," KeyBanc analyst Weston Twigg commented. "However, we expect headwinds to mount in the first quarter as data-center demand likely continues to slow and Intel's new Apple modem business likely declines amid soft demand; the first quarter is also typically a seasonally soft demand period, adding further risk if compounded by macro softness."
TheStreet's Eric Jhonsa pointed out that these broader risks are compounded by competition from Advanced Micro Devices (AMD) in particular, which looks to poised to continue reaping the benefits of Intel's pause in production of its next generation chips until late 2019.
The company has highlighted its launch of its 10nm Ice Lake architecture featuring robust AI and memory capabilities, as well as its 9th Gen Intel Core processors.
Further, the company presented its Project Athena 5G and AI efforts earlier this month.
The company has fielded big name partners like Alibaba (BABA) and Facebook (FB) for the respective efforts, adding nearer term theses to those awaiting more pie-in-the-sky fourth industrial revolution catalysts.
Still, these efforts remain nascent and will do little to head off concerns on the shorter term risks that will cloud the December results and March quarter forecast.
Facing Headwinds Without a Captain
Adding to uncertainty about the company's outlook and forecast is the fact that it is without a hand at the helm and has been for some time after the unceremonious departure of CEO Brian Krzanich in June 2018.
Krzanich left the helm after violating the company's non-fraternization policy and was replaced with CFO Bob Swan. Shares remain below the value they held before Krzanich's departure and the lack of clarity on leadership has aided in keeping the company's price to earnings ratio below its peer group amidst production problems pressuring the company.
"Structural challenges of course remain, including the state of the 10nm ramp, gross margins and capex into next year, and of course the CEO search, and will likely be top of mind for investors into the call," Bernstein analyst Stacy Rasgon noted.
Swan has been touted as performing well overall given the circumstances, but his disinterest in taking over the CEO role full time does not do much for shareholder confidence.
"There can only be one captain to a ship."
-Thomas John Barnardo
Patrick Terrion and Jeff Anello, principal and vice president of investment management respectively at Founders Capital Management, a Hartford-based investment advisory firm that holds 258,398 shares of Intel told Real Money in the fall that a leader needs to help make the business more flexible given the current market conditions.
"We're looking to see how Intel can compete as the semiconductor ecosystem changes," Terrion explained. "The cadence of Moore's law used to be two years and now the timeline is closer to four years. Intel needs to show it can adapt."
Given the necessity to adapt, the still-ongoing CEO search has likely done little to assuage their concerns.
"Whoever Intel ends up with, the new CEO will have major decisions to make regarding the future of the company now that its core competitive advantage in manufacturing is likely gone," Twigg noted. "Intel still owns an enormous ecosystem, a massive war chest, and amazing engineering talent; however, the direction and focus of the Company has become less clear."
For a list of potential targets for the important position, check out TheStreet's Annie Gaus' shortlist of candidates.
"We remain convinced that the current CEO transition at the Intel is a key opportunity for the company to reduce costs and restore focus to the core business, which remains controversial," Morgan Stanley analyst Joseph Moore wrote on Thursday, indicating the importance of at least some progress on the search.
Boosting With Buybacks?
It is worth noting that the company has an aggressive share repurchase program in place, something that could certainly buoy the stock in tempestuous waters if forecasts align more with Taiwan Semiconductors (TSM) than Xilinx (XLNX)
The $5 billion buyback signaled by Lam Research (LRCX) was a big driver of an earnings pop and a similar move by Intel to focus on its previously stated $15 billion buyback plan could serve to supplement any earnings numbers.
Further, at Intel's low price to earnings ratio relative to its peer group, the fact that it is a dividend payer should serve to combat some of the downside fears for the stock.
The dividend has steadily increased in recent years, with its last increase coming in February 2018 according to NASDAQ. If there are any surprises on this front it could also deaden the forecast fears that are plaguing the industry and more specifically Intel stock.
The question that will linger into earnings is whether or not the environment will permit such a move and further if interim CEO Bob Swan will be the man to make such a statement.
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