Intel shares fell by 3%, despite report better than analysts' expectations

Intel shares fell by 3%, despite report better than analysts' expectations

26 January Intel releases fourth quarter 2021 financial results. Revenue and profit were better than expected, but business margins continued to fall. In the postmarket, Intel shares fell by about 3%, to 50 $.

Financial results

Compared to Q4 2020:

  • adjusted total revenue — 19.5 billion (+3%), analyst expectations - $18.3 billion;
  • adjusted earnings per share — 1,09 (−26%), analysts' expectations 0,91 $.

And here is how sales have changed in the main operating segments.

Client Computer Group - PC and laptop processors - $10.1 billion (−7%). In this segment, revenue fell largely due to the lack of various components from laptop manufacturers..

Data Center Group - Data Center Processors - $7.3B (+20%). Here the company noted high customer demand from businesses and government agencies..

Internet of Things - chips for the Internet of things - $ 1.4 billion (+27%). One of the components of the segment is Mobileye's revenue. It's a chip designer, which are used in the driver assistance system. Mobileye is a small, but the fast-growing division of Intel. Quarterly sales increased by 7%, up to 356 million dollars, for the whole of 2021 43%, up to $1.4 billion.

Intel recently announced, that in mid-2022 will bring Mobileye to the stock exchange. After the IPO of the developer, Intel will remain the majority shareholder and will take into account the financial results of Mobileye in its financial statements..

Intel 2021 Results Compared to 2020, billion dollars

total revenues 79,0 (+1%)
Operating profit 19,5 (−18%)
Net profit 19,9 (−5%)
Operating cash flow 30,0 (−15%)
free cash flow 11,3 (−47%)
Capital expenditures 18,7 (+31%)

79,0 (+1%)

Profitability

Compared to the fourth quarter of 2020, Intel's gross margin fell from 56.8 to 53,6%. Already 10 years, the company's gross margin has been declining, as production costs rise faster than revenue. According to Intel, in the next quarter, margins will fall further to 49%.

To remedy the situation, Intel decided to change the business model. The company plans to produce its own chips, and also take orders from third-party developers. But first, Intel will have to increase its production capacity..

  FED - U.S. Federal Reserve in 2021-2022 year

In March 2021, the company announced, that will allocate $ 20 billion to build two plants in Arizona. And in mid-January 2022, Intel announced a $20 billion investment to build several factories in Ohio.. If the company receives a grant from the government, these investments will increase to $100 billion.

US President Joe Biden tries to convince Congress to allocate $50 billion to semiconductor manufacturers. In his opinion, this will help the US reduce dependence on other countries, and also cope with the shortage of semiconductors. The latter not only slows down production in various industries, for example in automotive, but also accelerates the prices of products.

Promotions

Over the past five years, Intel shares have lagged far behind S&P 500: 36 against 90%. Investors are in no hurry to invest in the company, not only because of falling profitability, but also because of the technological lag. Every year Intel loses market share to competitors from AMD.

As planned by Intel, margin and sales will start to grow after the launch of new plants in 2025. And there is a risk in doing so.. Semiconductor manufacturing is a cyclical industry. Possible, that by 2025 the demand for chips will not be so high, how the company calculates. As a result, multibillion-dollar capital expenditures may not pay off so quickly.

And this is the risk investors put into the price of Intel shares.. Now the company is worth everything 2,7 annual revenue - much cheaper, than many competitors. For example, AMD is valued by investors at 9,2, TSMC - in 10.5 annual revenues.

Intel shares fell by 3%, despite report better than analysts' expectations

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