Intel's forecast is 'most concerning to me', says Moor Insight's Patrick Moorhead

CNBC Television
1 Aug 202405:30

TLDRIntel's recent earnings report missed expectations, leading to a significant drop in share prices. Analyst Patrick Moorhead discusses the impact on Intel's customers and the concerning data center forecast. Despite the execution issues, Moorhead highlights Intel's 1.8 process as a potential bright spot, suggesting that success in this area could turn things around. He also touches on the competitive landscape, noting the importance of Intel's foundry capabilities and the strategic necessity of maintaining a strong design and manufacturing link.

Takeaways

  • 📉 Intel reported a miss on both the top and bottom lines, causing shares to drop over 17%.
  • 🗣️ Patrick Moorhead from Moor Insights expressed concern, particularly about Intel's forecast.
  • 💡 Despite the rough quarter, Intel is expanding dividends, trying to maintain investor confidence.
  • 🤔 Moorhead discussed with Pat Gelsinger, Intel's CEO, and highlighted the company's strategy and execution.
  • 🚀 Intel's 1.8 process for their foundary is seen as a potential game-changer if it gets on track.
  • 💻 The data center market is expected to be off the rails, which should benefit Intel as a major server processor provider.
  • 🔍 There's a concern that Intel might be losing market share to competitors like AMD and ARM in the server market.
  • 🌐 The importance of having in-house manufacturing capabilities is emphasized, with Intel and Samsung Semi being key players.
  • 📈 NVIDIA is expected to perform well in the short term due to high demand for generative AI in software and services.
  • 🏢 Companies like AWS, Microsoft Azure, and Google Cloud are increasingly using ARM-based solutions, impacting Intel's market position.

Q & A

  • What was the outcome of Intel's financial report that led to a significant drop in their stock price?

    -Intel reported a miss on both the top and bottom lines, which means they did not meet the revenue and profit expectations, leading to their stock price sinking more than 17% in after-hours trading.

  • What did Patrick Moorhead discuss with Pat Gelsinger regarding Intel's performance?

    -Patrick Moorhead had a conversation with Pat Gelsinger to understand the reasons behind Intel's poor performance. They discussed the company's strategy and the impact of not meeting revenue and profit expectations.

  • What is the significance of Intel's 1.8 process for their foundry?

    -The 1.8 process is crucial for Intel's foundry business. It is seen as a potential turning point for the company, with all good things expected to happen once this process gets on track and devices start running.

  • Why is the data center forecast concerning for Intel?

    -The data center forecast is concerning because it is expected to be off the rails, which could impact Intel's customers' profitability. Since Intel has the highest market share on servers, it is unexpected for them not to be the beneficiary of increased demand for processors in data centers.

  • What is Moorhead's view on the strategy Intel is pursuing?

    -Moorhead believes that Intel's current strategy is the only viable one for a company of its size and scope. He emphasizes the importance of having strong design and manufacturing capabilities, suggesting that Intel needs to maintain its integrated approach rather than splitting its foundry and design businesses.

  • What does Moorhead suggest could be the reason for Intel's execution issues?

    -Moorhead suggests that Intel's execution issues might be due to problems in manufacturing, such as burning wafers or work in progress from a packaging standpoint, which could be impacting their ability to ship products to customers.

  • How does Moorhead perceive the competitive landscape for chip manufacturing?

    -Moorhead sees TSMC as a strong competitor that is raising prices, which could affect companies without in-house manufacturing. He also mentions that for leading-edge chip manufacturing, the choices are limited to Intel and Samsung Semi, with Global Foundries as an option for less advanced technology.

  • What is Moorhead's opinion on the potential market share shift in the CPU industry?

    -Moorhead believes there might be a potential market share shift towards companies like AMD and ARM, especially considering the use of ARM-based processors in cloud services by major players like AWS, Microsoft Azure, and Google Cloud.

  • What does Moorhead think about NVIDIA's position in the market?

    -Moorhead expects smooth sailing for NVIDIA in the coming months due to the demand for generative AI in software and services, with companies like Microsoft and Meta investing heavily in capital expenditures to build out their AI capabilities.

  • What is Moorhead's perspective on the importance of having foundries in Western Europe and the U.S.?

    -Moorhead emphasizes the strategic importance of having foundries in Western Europe and the U.S. for leading-edge chip manufacturing, noting that Intel and Samsung Semi are the primary options, which is crucial for the competitiveness and security of the technology supply chain.

Outlines

00:00

📉 Intel's Q2 Earnings Miss and Strategy Discussion

In the first paragraph, the discussion revolves around Intel's financial performance, which has missed expectations on both the top and bottom lines, leading to a significant drop in share price. Patrick Moorhead, a tech analyst, provides insights into the situation, suggesting that Intel's strategy to prioritize revenue over profit margins might have been a calculated risk. He points out the importance of Intel's 1.8 process for their foundry business and expresses concern over the company's forecast, particularly in the data center segment. Moorhead also touches on the execution issues at Intel, contrasting them with strategic decisions, and highlights the necessity for Intel to maintain a strong design and manufacturing capability. The conversation also speculates on potential market share shifts to competitors like AMD and ARM, especially considering the growth in the data center sector and the reliance on CPU and GPU combinations.

05:01

🚀 NVIDIA's Position in the Data Center Market

The second paragraph shifts focus to NVIDIA, which is expected to perform well in the coming months due to the demand for generative AI in software and services. The discussion suggests that NVIDIA is well-positioned to benefit from the capital expenditure plans of tech giants like Microsoft and Meta, who are investing heavily in data center infrastructure. There is also a hint at a potential shift in the market share from Intel to companies like AMD and ARM, especially with cloud service providers like AWS, Microsoft Azure, and Google Cloud adopting ARM-based architectures. The paragraph emphasizes the strategic importance of having a strong presence in the foundry business, with Intel and Samsung Semiconductor being the key players in leading-edge technology.

Mindmap

Keywords

💡Forecast

A forecast in the context of the video refers to a prediction or projection of future performance, particularly financial. It is a crucial aspect as it guides investors and stakeholders on what to expect from a company. In the transcript, Patrick Moorhead expresses concern over Intel's forecast, suggesting it might not meet expectations, which is a significant factor affecting investor confidence and stock prices.

💡Earnings

Earnings in a financial context refer to the net profit a company makes over a specific period. It is one of the key indicators of a company's financial health. The video discusses Intel's earnings, noting that they 'missed' on both the top and bottom lines, indicating that the company's profits were lower than expected, which is a negative signal to the market.

💡Revenue

Revenue is the total income generated by a company from its business activities. It is a critical financial metric that reflects the company's ability to generate sales. The script mentions that Intel aimed to 'blow it away on revenue,' meaning they wanted to exceed revenue expectations, but this was not achieved, which is part of the reason for the negative market reaction.

💡Dividends

Dividends are payments made by a corporation to its shareholders, usually derived from the company's earnings. The video notes that Intel is 'expanding the dividends,' which typically signals confidence in the company's financial stability and a way to return value to shareholders. However, in the context of missed earnings and revenue, it might also indicate an attempt to appease investors despite poor performance.

💡Data Center

A data center is a facility used to house computer systems and associated components, such as telecommunications and storage systems. In the transcript, the discussion revolves around the significance of data centers for companies like Intel, as they are key customers for Intel's processors. The concern is raised that Intel's forecast for data center sales is weak, which could indicate a loss of market share or a slowdown in the industry.

💡AI Processor

An AI processor is a specialized hardware designed to efficiently execute artificial intelligence algorithms. The script mentions 'Media Lake, the first AI processor,' suggesting that it is a product that Intel is relying on to drive growth. Issues with this product's shipment could impact Intel's customers and, by extension, Intel's own profitability.

💡Profit Margins

Profit margins measure how much profit a company makes for every dollar of revenue. The video discusses Intel's profit margins in the context of the company's strategy to prioritize revenue over profit margins, which might be a short-term decision to maintain market share but could have long-term implications for the company's financial health.

💡Foundry

A foundry in the semiconductor industry refers to a manufacturing facility that produces semiconductor devices through processes like wafer fabrication. The transcript highlights Intel's foundry business, suggesting that having a strong foundry operation is crucial for Intel's strategy. The discussion points to Intel's 1.8 process technology as a potential bright spot for the company's future.

💡Execution Issue

An execution issue refers to a problem in the implementation or operational phase of a plan or strategy. The video transcript indicates that Intel's challenges are more about execution rather than the underlying strategy. This suggests that while the company's direction may be correct, the ability to effectively carry out plans is where they are faltering.

💡Market Share

Market share is the portion of the total available market that a company captures with its product or service. The discussion in the video points to a potential shift in market share within the semiconductor industry, with companies like AMD and ARM possibly gaining at Intel's expense. This is concerning for Intel as it could signal a loss of competitive edge.

💡Capacity

In the context of the video, capacity refers to the production capacity of semiconductor chips. The script mentions a past debate about whether the world needs more chip capacity, which is now being answered by the growing demand, especially for AI and data center applications. The discussion implies that Intel's strategy includes expanding its capacity to meet this demand.

Highlights

Apple reported a beat, causing shares to rise.

Intel reported a miss on both top and bottom lines, with shares sinking over 17%.

Intel's dividend is expanding despite the financial miss.

Patrick Moorhead discusses a rough quarter for Intel.

Intel's strategy discussed: hitting revenue and managing costs.

Impact on Intel's customers' profitability due to product shipment issues.

Intel's forecast is concerning, especially in the data center segment.

The necessity of CPUs for GPU shipments, questioning Intel's market position.

Moorhead's belief in Intel's roadmap and the importance of the 1.8 process.

Execution issues at Intel rather than strategic flaws.

The importance of a strong design and manufacturing strategy for Intel.

The competitive landscape with TSMC raising prices and Intel's position.

The potential market share shift to AMD and ARM in the CPU market.

NVIDIA's expected smooth sailing due to demand for generative AI.

The significance of Intel's position as a market leader in CPUs for data centers.

Concerns about unexpected slowing in growth for companies like NVIDIA.

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