The Six Five team discusses Intel Q4 2023 earnings.
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Transcript:
Daniel Newman: Intel was an interesting one because you had … it’s a tale of two pieces of news. The first piece of news is, “Well, how’d they do this quarter?” This quarter was good against the expectations they had set. They beat. The problem was, and this is often a problem, a beat in this quarter is old news and the guide is always what sets. If you can’t hit on all three, you’re never … a beat, beat, miss may as well be a miss, miss, miss in this era, and that’s why Intel saw a 10% drop. Look, I’m going to give it two sides. There were some things that would’ve been very indicative that Intel was going to have a harder quarter and there were some things that needed to … just Mobileye, for instance. You saw that their guide going forward was going to be a huge miss. Now, Mobileye’s not a massive part of the business, but Mobileye’s been one of the growth vectors of the company over the past several quarters.
Pat, the big thing, though, that everybody I think is really questioning right now is all about the data center and AI business. You see the flourishing businesses of NVIDIA. Even on the software side, you see Microsoft, you see all the investment in growth. You hear about AWS Inferentia. The question mark about how Intel, between its CPUs and its GPU … well, not GPU business, and of course it’s ASIC, Gaudi 2 and the oncoming Gaudi 3. What it’s got going on there is when is that going to start to get momentum and help data centers start to show growth year-on-year? It was another down quarter and again, now we’re into that period of time where you’re down year-on-year against down quarters. A couple of years back, it was like, “Well, they’re down, but they were having these remarkable quarters. Now, they’re down.” Now, we’re supposed to be seeing it pick up.
We also know that there’s this really important AI PC trend, but that was actually really pretty positive. You saw client computing picked up off the bottom. I think it was 33% up on a year-over-year basis. You and I got to talk to Pat Gelsinger. He was pretty realistic about it. He mentioned some of the forces, some of the cyclicality, he mentioned Mobileye. All these things came at once and it caused the guide to be a pretty substantial miss. I think it was more than a billion off the miss. Having said that, Pat, I’m still pretty positive about what the next four quarters … Gelsinger said to us, “Every quarter end on a year-over-year basis, we will see improvement on the company’s earnings.” We’ve seen really good growth in founder services, 63% up year-on-year, not just 63% up but more winning some really great packaging deals and starting to get its process deals underway. I think with Intel 3, we’re starting to go to market with that. Confirm me if I’m wrong on that one. A lot going on here, Pat, but I’m optimistic. I’m optimistic they … AI is not over. They have a shot of catching up. I saw you wrote a great paper on their overall AI strategy, had some good comments on CNBC.
Patrick Moorhead: I think you wrote one, too.
Daniel Newman: I did and that’ll come out later, but it’s process, it’s in the making. It’s been a good turn under Gelsinger. It’s not going to happen overnight and I think people think a ship like this could turn in a day. It’s not going to turn in a day. It takes time.
Patrick Moorhead: I’m going to spend a little time on the quarter and then you spend a lot of time on the future. They beat on revenue and they beat on profits, so they had a beat, beat. Gross margin is the best way, I believe, to measure a chip company because it gets into its design, your design, it hits the fabrication and it hits the pricing. Intel years back was at 70% and then they went in the 30s. Their gross margins were up 3% sequentially and 6.5% year-on-year. That’s huge. I think it also hit its $3 billion OpEx savings goal. That was the year, obviously not for the quarter. They’ve got the first Foundry offering, EUV offering, in US and Europe and on track five nodes in four years. The reason why I always get back to the five and four is because it will determine Intel’s cost, competitiveness and performance competitiveness. Super interesting.
2024 … overall, I put this quarter … I wouldn’t say a mulligan but, when I look at how bad Mobileye 5G telco biz and FPGA when and those were usually things that help the business, the core business was definitely at the low end of what you would expect for seasonality. I would’ve expected a little bit more bullishness on Q1 on the PC side.
On the data center side, they’re a challenge. They’ve got a ton of homegrown stuff coming after them, you’ve got AMD that’s perpetually strong and you also have, as … Dan, you and I have sat with enterprise OEM number one people and they’ve had a consistent theme of, “Hey, we’ve got chassis with CPUs that are waiting for GPUs that we can’t ship.” There’s also been this huge requirement to bring on generative AI in the CSPs, and many of those CSPs have found ways to get NVIDIA and AMD’s latest and greatest and just stick them in the same chassis. There’s not a need to ship a new server with an Intel CPU. Now, if AMD comes out and they have an amazing quarter, that will tell us a lot.
I went into earnings looking for gross margin improvement. We saw that. I looked at a lift from Core Ultra, didn’t see that. I still stick to my guns, that I do believe that, industry-wide, we’re going to start seeing the real AI, the bigger AI PC action in the middle of the year when Qualcomm comes out. I believe that there will be operating system support, then AMD and Intel after that. I think Q4 is the big lift on PCs.
On the server side, Intel has some really interesting stuff coming out. You’ve got Intel 3 with Sierra Forest and Granite Rapids. You’ve got 18A, which is the second half thing for Panther Lake. Those are some pretty exciting stuff. 18A is already in the fab which, yeah, I usually give it a year between that, but it was in the fab in the fourth quarter. We’re going to see servers in the second half and I’m going to put that at Q4.
A lot of interesting stuff going on here. I don’t view my long-term prognosis of Intel any different after this quarter than the long-term. I’m not an equities analyst, I’m an industry analyst, so I do look at things in a different way and I want to remind everybody: for all the haters of Intel, Intel still has 80% of the PC market and around 80% of the server market.
Daniel Newman: I feel like I’ve got to say that all the time to people. Yes, they’ve ceded some market share, but people trade them like they’re Blockbuster Video sometimes, or they’re Radio Shack. It’s far from that and they’ve got an incredible distribution in channel, too, which doesn’t … it’s not easy to unwind that. It’s going to take a lot of work and the competitors have made great strides, but Intel’s directionally … I think it’s finding its sea legs. I think it has found its sea legs, Pat. Again, it’ll take some years to make up for the years that it wasn’t hitting on all cylinders, but I think Pat’s got it going in the direction he wanted it going. Big Pat, not Little Pat. Little Pat … you’re Little pat.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
