Intel’s stock lost a significant amount of value after its Q4 2018 earnings announcement on Thursday, though the company rallied a bit on Friday, taking some of the bite out of the hit. Investors were evidently concerned about the chip manufacturer’s guidance for 2019, despite the extremely strong showing for Intel during full year 2018.
Before we dive into Intel’s numbers, it’s worth noting that this kind of response to quarterly news has become a trend in the past few months. 2018 was a strong year for many tech companies — Intel, Nvidia, and AMD all had a very good run and we don’t expect to see Q4 results that shake this much. Investor jitters are linked to a number of factors, including the ongoing US government shutdown and worries over a recession in China. Concerns about the US-China trade war have also been generally high. Apple’s iPhone slowdown hasn’t helped the general semiconductor market any, either, with TSMC projecting weak demand in H1 2019.
With all that said, once you look at its actual financials, Intel had a pretty good quarter. Revenue was up 9 percent, to $18.7B, compared with $17.1B in Q4 2017. Operating income rose 15 percent, to $6.2B. Full-year revenue rose 13 percent to $70.8B, setting a record for Intel. Specific unit growth figures were strong as well. PCG (PC Group) and DCG (data center group) revenue rose 10 percent and 9 percent respectively, while IoT sales fell 7 percent. NSG (Intel’s memory business) and PSG (programmable solutions) grew 25 percent and 8 percent respectively. These last three units are only a fraction the size of Intel’s PCG and DCG, but they represent significant growth markets and opportunities for the company in the long term.
As this set of slides implies, Intel doesn’t expect to see major revenue gains in the PC space. “Continued execution” is the goal. And as for why the company’s stock has been hit, it’s for slides like this:
Acting CEO Bob Swan expanded on these remarks when he said:
ourth quarter revenue of $18.7 billion was up 9 percent but short of our expectations as a result of a dramatically weakening modem demand, lower overall growth in China, cloud service providers absorbing capacity and a weakening NAND pricing environment.
Intel expects to work through its supply constraints on 14nm by the end of Q2 2019, but noted that its unit shipments in the PC TAM fell by just 2 percent (Swan attributes this to Intel’s supply constraints, not any increased competition from AMD). Macroeconomic concerns dominated the QA portion of the analyst call rather than competitive questions about Intel’s product roadmaps. Chief Engineering Officer Murthy Renduchintala reiterated that the company is on track to deliver 10nm, saying:
I feel better about our traction today than I did 90 days ago. So that continues to bode well for our product launch ambitions, which Bob summarized is having systems on shelf for holiday season in 2019 with a barrage of products across all of our businesses to follow shortly thereafter.
7nm was also described as being on track for delivery.
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