By nearly every metric, this is a great time to be in semiconductors given high levels of demand and growing margins. However, Intel (Nasdaq: INTC) which is the most prominent semiconductor stock, is flailing and falling behind its competitors. This is evident in its third-quarter earnings report which beat estimates but missed on key metrics including data center sales. As a result, Intel's stock declined by 10%.
Intel's stock dropped by 15% in its last report when it revealed that it was falling behind in the production of its 7nm chips. This marked a secular shift when it became clear that Intel had lost its standing as the leader in the semiconductor industry.
Inside the Numbers
Intel reported $1.11 in earnings per share which was slightly above analysts' estimates. Revenue came in higher than expected at $18.33 billion, vs. $18.25 billion. This was 4% less than 2019's Q3.
Intel's Data Center Group was a big disappointment as it reported $5.91 billion in revenue, a 7% decrease, and below expectations of $6.21 billion. Intel attributed the miss due to less spending by enterprises and governments which it attributed to the pandemic. The average selling price was down by 15% as well. However, this is concerning as Data Center was the company's lone bright spot and competitors have continued to grown data center sales through the pandemic.
Client Computing Group, which sells PC chips, generated $9.85 billion in revenue, a 1% year over year increase and above the $9.09 billion expected by analysts. This is a reflection of increased demand for PCs due to work-from-home and learn-from-home.
Intel is forecasting $1.10 in EPS and $17.4 billion in revenue in the fiscal fourth quarter. This is a 14% decline in revenue. Another update from management is CEO Bob Swan saying Intel will make a decision on outsourcing manufacturing in January.
Intel is unique in that it handles design and manufacturing, however, this is also the genesis of the current reason why it fell behind its peers in new chips. Its competitors design chips and outsource manufacturing. Many blame it on Swan who is the first Intel CEO with a financial background and not a technical one. Early in his tenure, many of the top technical people left the company after clashing with the new leadership team.
Stock Price Impact
Nearly, every semiconductor stock is doing very well. While most sectors have been negatively impacted by the coronavirus, it's resulted in increased demand for PCs, laptops, tablets, servers, video games, and cloud computing that all translate into increased demand for semiconductors.
As a result, the semiconductors ETF hit a new, all-time high in October and has outperformed the market on short and longer timeframes. Competitors like Nvidia (Nasdaq: NVDA) and AMD (Nasdaq: AMD) are overtaking intel in terms of technical prowess.
Intel's stock is down 20% YTD and close to its March lows. In contrast, Nvidia and AMD are up 110% and 80% respectively YTD. Some may be tempted to try to pick a bottom in Intel given its 2.7% dividend yield and P/E ratio of 8. However, Intel could be the ultimate value trap, as it's seeing deceleration in each of its major business units.