Rumors of Intel’s (INTC) death have been exaggerated. Not only is the chip giant alive and kicking, it is deploying it massive cash stockpile to regain its lead in chipmaking technology. The company on Friday announced a whopping $20 billion investment for a new manufacturing facility near Columbus, Ohio.
The company said, for that $20 billion, it will build at least two semiconductor fabrication plants, or fabs, on the 1,000-acre site. Construction will begin this year and the plant should be operational by 2025. Intel also retains the option to scale up to 2,000 acres and to support eight fabrication plants. But will investors be patient enough to allow the company time to execute its strategy, especially at a time with rivals rivals AMD (AMD) and Nvidia (NVDA) are striving in several important chip developments?
This is one of several questions investors will ask when fourth quarter fiscal 2021 earnings results after the closing bell Wednesday. While Intel has surpassed the Street’s revenue estimates in eleven straight quarters, weaknesses in the datacenter group and client computing group have pressured the stock. Shares of the chip giant have fallen 6% over the past six months, compared to 3% rise in the S&P 500 index. The stock is down about 11% over the past year, lagging the S&P 500’s 16% gain. Intel on Wednesday must prove the naysayers wrong, while selling the upside potential of its recent manufacturing plants.
For the quarter that ended December, the Santa Clara, Calif.-based company is expected to earn 90 cents per share on revenue of $18.32 billion. This compares to the year-ago quarter when earnings were $1.52 per share on revenue of $19.98 billion. For the full year, earnings are expected to decline 0.37% year over year to $5.28 per share, while full-year revenue of $73.51 billion would decline about 5.6% year over year.
The expected year-over-year of 8.30% and 40% declines in revenue and profits, respectively, are a couple of reasons Intel wants to re-invent itself by investing in $20 billion in the manufacturing plants. This shouldn’t have been a surprise as Intel CEO Pat Gelsinger has promised over the past several quarters that Intel would double down on its willingness to boost manufacturing capacity. "Our expectation is that this becomes the largest silicon manufacturing location on the planet," Gelsinger told Time magazine on Friday. "We helped to establish the Silicon Valley. Now we're going to do the Silicon Heartland."
As have been the case, however, execution will be critical to the company’s success and the movement of the stock price. In the third quarter, the company reported adjusted EPS of $1.71 per share which not only beat estimates, it also represented a year-over-year rise of 58%. Intel benefited from gross profit margin which expanded by 130 basis points year over year to 57.8%. Q3 revenue was not impressive, coming in at $18.1 billion, or about 1% below consensus estimates. Struggles in the datacenter group and client computing group pressured revenue growth.
The Client Computing Group revenues declined 2% year over year and 4% sequentially. The company also guided for Q4 earnings to come in 11% lower than analysts' expectations. It wasn’t a surprise that the stock was subsequently punished. On Wednesday investors will want to see whether these areas show enough improvement to revive the stock. Intel will also need to adequately respond to questions about realistic expectations for its $20 billion investments in manufacturing capabilities.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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