00:00 Speaker A
Intel sharing plans to cut its workforce by about 20% by the end of the year and trim its operating expenses, shares down 9%. Stacy Rasgon is Bernstein senior managing director and senior analyst. Stacy, um, joining us now, you’ve got a market perform rating on this one, $21 price target. Um, and you you said in your note reacting here, the earnings were actually not bad, but do the earnings matter? Like what matters to investors when it comes to Intel right now?
00:48 Stacy Rasgon
Yeah. And that the numbers don’t don’t I mean that was my take even into the print, like who cares about the numbers? Right? The question is on, you know, the strategy and what are they going to do? And, you know, is their process roadmap any good or is it not? And are there going to be foundry customers and a and a foundry business that is robust or is there not? Like those are the questions that matter. And we got a little bit of color on that last night and that’s that’s part of the reason the stock is doing so poorly today. Like that the numbers overall were were okay. It was actually a a a decent beat in in in the quarter, um, they missed earnings, but there were some one-time charges in there. The revenue guidance was was pretty solid. Um, again, earnings margins were a little lower, but I mean, who cares? The biggest issue was was around their, um, process roadmap. Um, particularly their next generation process. I’m going to throw some numbers out, but they they name their processes after nominally the size of the transistors. The next the one they’re getting ready to ramp is called 18A.
02:38 Speaker A
Right.
02:39 Stacy Rasgon
This is the one that the prior CEO Pat Gelsinger sort of, you know, bet the company on effectively, right? Now it’s turning out like 18A is is not it’s it’s 14A with which is I I guess the the next one that’s going to potentially save them. Um, that is the node that if they can build a foundry business that they will build around it and it didn’t sound like they were entirely confident. And so they actually put some risk factors, new ones in their in their filings, and they talked to us on the call. They basically said we cannot afford to develop 14A if it is only for us. We need external customers, and if we can’t get external customers, we may have to stop development on our forward process node. So it didn’t sound like that they were incredibly confident on their ability like to to get that node developed and ramped and frankly, to my mind now, the call on the stock is is pretty simple. Can they get a hero customer on that node, which they don’t have a process for yet? Can they get a hero customer in the next like 12 to 18 months, a customer that is big enough to make that node viable? And if they can, maybe there’s a story here. And if they they can’t, then it’s it’s a problem.
04:27 Speaker A
Yeah. And right now we have no basis to make that decision one way or the other, and hence the stock is is selling off pretty sharply today. Yeah, I mean, I
04:39 Stacy Rasgon
There was a definite change in town.
04:41 Speaker A
Yes. I know it just for to zoom out a little bit for people who are haven’t been as steeped in this, like, if you look at the numbers here, the annual sales of this company have gone down by something like $20 billion over the past few years. So we’ve seen this shrinking. Yeah. Um, what is the place of Intel ultimately in the semiconductor universe? What role does it play?
05:17 Stacy Rasgon
Yeah. So let me talk about their products and then talk about like the sort of future, right? So the current products they they sell mostly chips for PCs and chips for servers. And chips for PCs is is is fine, but PCs, I mean I mean they’re you know they they had spiked during COVID and and we’re in a we’ve been in a hangover position, but that that that that market’s not really growing and and they’re losing share. And then in data center, I mean they’ve they’ve been decimated. They have like sort of three layers of share loss. They’re losing share in the chips that they make to their competitor like AMD. Um, that architecture that both of them make is something called X86. X86 CPUs and servers are losing share to another architecture, which is called ARM. And you’ve got big customers like the hyperscalers that are starting to build their own chips. And then CPUs in the data center in general are losing share to to GPUs to players like like Nvidia, right? And so they don’t really have an answer to any of those. And again, their data center revenues have have collapsed over the last several years because of this. So in terms of the products that they sell, they’re they’re certainly less relevant than they were and there are other competitors now that are that are much bigger, um, and and and still growing.
06:55 Speaker A
Yeah. Um, now in terms of the future, I mean, look, people would say, look, Intel’s the only sort of US-based source of of purportedly leading edge semiconductor manufacturing, which is a huge sort of geopolitical and and strategic, um, uh, uh, effort of the So there’s this view that we need Intel.
07:24 Stacy Rasgon
And I guess that’s true, except that Intel is now cutting back on their efforts. They’re actually delaying their big buildout in Ohio even further. They’re cutting their capex, they’re cutting their their their head count, and you’ve got competitors like like like TSMC, for example, who are actually building a large amount of capacity here in the US and Right.
07:50 Stacy Rasgon
I could make the argument that the longer Intel waits and the longer it takes them to ramp this stuff up, the more capacity is getting built here in the US by other players, maybe the the less we need them over time. And now they’re basically saying, you know, if we if we can And by the way, it’s smart, you can’t build these factories with no customers. That was the problem that that Pat Gelsinger. That was his strategy didn’t work. But I mean, if if you now they’re basically saying if we can’t get customers, we we may have to give up and sort of that puts every puts the onus even more on TSMC. But the longer that they wait, like the you could make the argument that maybe the less we need them, like. But I I don’t know, I think again, it’s this kind of like dichotomy and this uncertainty that that that that’s weighing on it.
