INTC: Wishy-washy presentation
In a disappointing presentation at an investor conference yesterday, the CFO, newly appointed as interim co-CEO, missed an opportunity to wipe the slate clean and start afresh. If, at the very least, Q4 guidance was reiterated, that would have been progress. But the vague language leaves investors guessing. Progress on 18A? Looks like the schedule has slipped, thus confirming worries on the Street. External customers at 18A? No mention of. Concrete plans for use of the just-delivered monies from CHIPS Act? None provided. Vague promises of improving IFS margins next year, for which we suspect there are few takers on the Street. The icing on the cake for short sellers was the lowering of Product margin outlook.
Even though there is every reason for the stock to trade down from current levels, we suspect short sellers would be wary of headline risk. If the Board were to announce an acceptable permanent CEO, no one wants to be on the wrong side of a SBUX-type move. In case of INTC though, none of the candidates mentioned in the media seem all that exciting. And it is doubtful whether elevation of either one of the two interim co-CEOs would do the trick.
Even if a credible CEO were to be named, given the daunting challenges faced by the company and the sore disappointment the initial excitement around the appointment of the previous CEO turned into, we think an initial pop in the stock would only encourage short sellers.
But hope springs eternal. The new CEO appointment may turn out to be a clearing event after all, and with it, new investment from private sources to follow. To the growing list of potential CEO candidates out there, allow us to throw another one – Jim Keller of Tenstorrent. Intel is one of the last remaining repositories of silicon engineering talent in Silicon Valley. There is value in retaining that talent under one roof. We suspect that talent pool is deeply demoralized. It would take a technology leader with impeccable credentials to re-invigorate the workforce. More cost cutting just isn’t going to do it.
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Q4 guidance update– wishy-washy: The CFO’s comment ‘we stand by the guidance we gave at earnings’ simply does not cut it, in our view. If the idea was to reiterate guidance, then it would have been appropriate to include a statement in the 8-k filed two days ago announcing the departure of the previous CEO. Or at the very least we would have expected the CFO to say something along the lines of ‘the quarter is tracking to our expectations’. In the absence of such a statement investors could assume the quarter is likely tracking BELOW expectations.
Intel 18A update – further delay: Four months ago, at the Q2 earnings call, 18A schedule was set to volume ramp in 1H25. A month ago, at the Q3 earnings call, there was a slide in the language; 18A was simply characterized as ‘progressing well’. Yesterday at the investor conference, the goal post was moved yet again – volume ramp is now expected only in 2H25. This means that Intel’s 18A products, Diamond Rapids for servers and Panther Lake for PCs have slipped by an additional six months at the very least.
IFS external customers – slim pickings: The Ops Chief’s comments seem to confirm what investors had come to suspect – there are no major external customers at 18A. And no real commitments for the next generation 14A either. Pat’s dream of Intel offering foundry services to fabless companies now seems to slip further away. And if IFS has no credible external customers, what would be the justification in spinning IFS out as a separate company?
Product division – slipping margin: The CFO appeared to talk down 2025 margin expectation of the 3nm-based client product Lunar Lake. While reason given was high memory costs, we suspect the real reason is the wafer price increase out of TSM. Next generation client product Panther Lake, based on 18A is expected to improve product margin as more chiplets are insourced. However, with 18A production ramp now apparently slipping by from 1H25 to 2H25, we suppose the ramp of Panther Lake in IFS slips from 2H25 to 1H26, thereby delaying margin improvement.
While the above is a 2025/26 narrative, more worrisome is the CFO’s comment on margin slippage over a multi-year basis, from the low 50s to ‘something with a four handle on it’. With IFS margin deeply in the negative territory, Pat’s hopes of margin recovery back into the 60s territory now seems further away.
Capex – feels like a cut: In his role as co-CEO, the CFO says he has committed to the BOD for extracting incremental ROIC from investments already made. It feels like he is making a cut to the 2025 capex outlook he had provided at the Q2 and Q3 earnings calls – gross and net capex of $20bn-$23bn and $12bn-$14bn respectively. With 18A likely delayed by six months, there is justification for pushing out capex ramp for 18A capacity.
Taiwan supply chain partners – left wondering: In the final month of his tenure Pat had made well-publicized trips to Asia, we suppose to re-establish relationships with supply chain partners in light of the soon-to-be consummated CHIPS Act grant approval. His abrupt exit we think may have rendered those relationships in disarray. Price commitments and payment terms he may have worked out with key Asia partners may be scrapped. Make no mistake, there is a cost to Pat’s abrupt exit. We doubt if either of the two co-CEOs would be able to fill his shoes.
Net/Net: Even though there is every reason for the stock to trade down from current levels, we suspect short sellers would be wary of headline risk. If the Board were to announce an acceptable permanent CEO, no one wants to be on the wrong side of a SBUX-type move.
Performance and financial metrics appear to have deteriorated further. Pat’s abrupt exit weighs on company morale and supply chain partner relationships. We expect the stock to remain in purgatory awaiting announcement of a new CEO.
KC Rajkumar