Intel slips on weaker than expected Q1 projections

Intel's share price has taken a near six percent hit in after-hours trading, despite seeing revenue increase 13 percent for its full 2018 financial year and growth across almost every business unit, after projecting a weaker quarter ahead.

In its latest financial report, which ends the company's fourth quarter and full 2018 financial year, Intel had a lot to celebrate: The company's quarterly revenue was up nine percent year-on-year, though a three point drop in gross margin to a still-more-than-healthy 60.2 percent softened the numbers a little, while its full-year earnings were up a whopping 13 percent and gross margin down a gentler 0.6 percentage points. Broken down into individual business units and taking the full-year figures, the company's report shows a nine percent growth in its PC division, 21 percent in its data centre division, 22 percent in its non-volatile memory memory group, and 12 percent in its programmable solutions group. Even the company's Internet of Things (IoT) group saw nine percent of growth for the full year, despite a seven percent slip for the fourth quarter.

'2018 was a truly remarkable year for Intel with record revenue in every business segment and record profits as we transform the company to pursue our biggest market opportunity ever,' claims Bob Swan, Intel chief financial officer and interim chief executive. 'In the fourth quarter, we grew revenue, expanded earnings and previewed new 10nm-based products that position Intel to compete and win going forward. Looking ahead, we are forecasting another record year and raising the dividend based on our view that the explosive growth of data will drive continued demand for Intel products.'

The company's investors, however, appear unimpressed: The company's share price was trading up 3.8 percent ahead of the earnings call on strong estimates from industry analysts, but the company's warnings on a weaker-than-anticipated upcoming quarter saw an after-market sell-off that has left the company's share price 5.91 percent down. While the company hasn't gone into detail as to the core reasons for the lower-than-expected projections, Swan did finger 'trade and macro concerns, especially in China' as at least a partial cause alongside reduced average selling price (ASP) growth 'as we are going to fight to protect our market share position' - the latter an oblique reference to the growing popularity of rival AMD's Zen architecture products in markets where Intel has traditionally enjoyed an overwhelming majority share.

Swan also took the opportunity to issue an update on the ongoing CPU shortages that have seen the company prioritise its higher-profit parts and left demand exceeding supply. 'I think inventory levels, relative to the beginning of the year, were a little bit higher,' claimed Swan during the company's earnings call. 'Maybe a week and a half, two weeks higher as we enter the year. Our expectation is, working with our customers, that we will be through the supply constraints as we exit the second quarter of the year. Again, we'll use the same prioritisation of server, big core, small core [chips]. But we'll be a little bit short on some product mix and on small core until we get probably through the second quarter, and that will constrain us a little bit on overall growth in the first half of the year.'

Intel also revealed confidence that its 10nm problems, which have seen the launch of parts on that process node delayed for four years and counting, are behind it. 'Our 10 nanometre yields continue to improve,' claimed Swan, 'and Ice Lake remains on track to be in volume systems on retail shelves for the 2019 holiday selling season.'

'I feel better about our traction today than I did 90 days ago, so that continues to bode well for our product launch ambitions which Bob summarized is having systems on shelf for holiday season in 2019 with a barrage of products across all of our businesses to follow shortly thereafter,' added Murthy Renduchintala. 'The story is not just about 10nm yields but 10nm now being a key part of our entire product portfolio. I think that, coupled with our focus on the pillars of technology that Bob talked about, in my mind I think puts our product portfolio looking forward in a pretty good position. So, net-net, I think 10nm is looking better now than at the last earnings call. It's broadly deployed across our portfolios, and that in combination with the other technology ingredients that Bob talked about we believe sets us up for a pretty exciting product roadmap.'

Swan also addressed the elephant in the room: The lack of permanent chief executive, following the resignation by Brian Krzanich over a breach of the company's fraternisation policy in June last year. 'The Board continues to evaluate candidates for what I believe is the biggest and best open job on the planet,' claimed Swan. 'They are proceeding with a sense of urgency while also ensuring that they make the right choice for this great company. Meanwhile, Murthy [Renduchintala], Navin [Shenoy], the entire management team, and the 107,000 employees have come together as a team to continue driving Intel's transformation to a data centre company.'