Intel Stock Fell 20% in Two Weeks Due to Earnings Outlook

Intel’s new CEO disappoints investors 

After years of investing in various data-centric businesses with little returns, Intel (INTC) needed to get some financial discipline in place. Currently, the company is led by three financial leaders—Chairman Andy Bryant, CEO Bob Swan, and CFO George Davis. Bryant and Swan served as the company’s CFO in the past. Despite the leaders’ financial expertise, Intel reported a disappointing outlook for 2019–2021.

Intel Stock Fell 20% in Two Weeks Due to Earnings Outlook

Sign up for Bagels & Stox, our witty take on the top market and investment news, straight to your inbox! Whether you’re a serious investor or just want to be informed, Bagels & Stox will be your favorite email.

In January, Swan was appointed as the company’s CEO. He doubled Intel’s return on investment from 10.3% in 2017 to 21.3% in 2018 during his tenure as the interim CEO. In Swan’s first earnings call as the CEO, he cut Intel’s 2019 revenue guidance by $2.5 billion to $69 billion due to falling memory prices and declining demand for server processors.

Intel’s three-year outlook

Swan presented at Intel’s 2019 Investor Meeting. The company reported a weak three-year earnings outlook, which indicates that the company is lagging its peers. Swan stated that Intel’s revenues and EPS are expected to grow by low-single digits over the next three years. Double-digit growth in the data center is expected to be partially offset by declines or no growth in the PC business. The company expects its revenues to reach $76 billion–$78 billion by 2021.

In the next three years, Intel will accelerate its transition to advanced manufacturing processes in order to catch TSMC. TSMC has started volume production on the 7nm node. The company has started working on the 5nm node. Intel plans to bring its first 10nm chips by the end of the year, boost 10nm production in 2020, and transition to 7nm in 2021. The process of catching up will likely hit the company’s gross margin. Intel expects its gross margin to hit the bottom—as low as 57%—by 2021.

However, Swan expects to maintain Intel’s operating margin at 32% until 2021 by cutting the operating expense to as low as 25% of the revenues from the current 29%. The company is focusing its expenses on high-margin businesses. Intel is exiting low-margin businesses like the 5G smartphone modem.

Intel stock fell ~20% in two weeks

Due to the anemic growth outlook, Intel has fallen 19.1% since April 25. The company released its first-quarter earnings on April 25. Intel stock underperformed the Philadelphia Semiconductor Index, which fell 5.2% during the same period.

Check out all the data we have added to our quote pages. Now you can get a valuation snapshot, earnings and revenue estimates, and historical data as well as dividend info. Take a look!