Investor Destination

Why Intel Stock Slumped Today?

What happened?

Intel Corporation (NASDAQ: INTC), generated $19.7 billion in revenue in the second quarter, up 20% year on year, and delivered $1.23 in earnings per share, up 16%. It exceeded its guidance by $1.2 billion on the top line and $0.13 on the bottom line. However, its stock shredded almost 15%.

Why?

Working and learning from home helped the company achieve record revenue in the quarter. The data center segment was particularly strong, with sales soaring 43% from the prior-year period. Even its PC-centric revenue was up 7% year on year on strong notebook PC sales. However, its gross margin is 53%, a sharp decline compared to last year, 60%. The company expects slightly lower revenue in the second half as COVD-19 triggered demand tapers off. Investors are a bit disappointed with its third-quarter guidance, but that is not what spooked them. The company offered updates on its 7nm manufacturing process, and investors decided to dump its stock.

The company has now delayed the rollout of its 7nm CPUs by six months relative to its previously-planned release date. According to the company, its 7nm CPUs will not debut on the market until late 2022 or early 2023. Investors are concerned about the implications of this delay in two-folds. Rival AMD has already begun selling its 7-nanometer chips. Intel will be losing market share to competitors, and it will also be playing catch up for the next generation 5nm CPUs rather than leading.

Now what?

During the conf call, the management tried to convince investors about its contingency plan. It will improve the performance within 10-nanometer and help its customers meet their product roadmap targets without compromising the performance. The company had experienced a delay in its 10nm process too. At that time, it took a similar approach to improve the performance within a 14-nanometer. In general, Intel uses internal manufacturing facilities to manufacture its products. However, now the company is planning to be flexible, use whatever technology stack was required to deliver performance leadership, entirely internal manufacturing, fully external foundry process, or a combination of the two. It is good that management remains pragmatic and flexible. However, if the company decides to implement its contingency plan, use external foundries to manufacture 7nm CPUs because its fabs can't handle the job; its massive factories go from a strength to a balance sheet's a weakness.

Its 7nm manufacturing process delay will result in wide-ranging delays to the company's roadmaps. However, the company investing in the next generation, high growth areas such as 5G, autonomous vehicles, machine learning, and AI, and is making progress. Recently it has further strengthened its partnership with Ford to deliver technology for autonomous vehicles. While it is having a bump in the road, it is driving towards a bright future.

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