Intel crushes Wall Street’s Q4 2020 earnings estimates by 36 percent

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Intel recently announced its fourth-quarter financial results, which exceeded Wall Street’s profit expectations by 36 percent.

The chipmaker also revealed plans to fabricate most of its products internally by 2023. Incoming CEO Pat Gelsinger declared his employer is focused on asserting its position as the world’s “unquestioned leader of process technology.” He made no definitive statements about changing its existing internal production model.

The corporation doubling down on being an integrated design manufacturer (IDM) is surprising given reports of a new partnership with pure-play foundry Taiwan Semiconductor Manufacturing Company (TSMC).

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Intel’s Q4 2020 Financial Results

Intel made $20 billion in the holiday quarter with adjusted earnings per share (EPS) of $1.52 during the fourth quarter of 2020. That means the firm significantly exceeded market analysts’ predictions it would make $17.5 billion in revenue and $1.11 in EPS.

The corporation topped Wall Street’s prognostications on an individual segment basis as well. Its personal computer unit earned $10.9 million versus $9.72 billion predicted, and its data center division took in $6.1 billion as opposed to the forecasted $5.2 billion. Also, the company’s Mobileye self-driving car subsidiary brought in $333 million, a 39 percent surge from Q4 2019.

Intel generated a record high of $77.9 billion in sales last year, which means it generated record annual revenue for five years consecutively.

Those strong quarterly and annual results serve as an excellent grace note for outgoing CEO Bob Swan. The executive will exit the role on February 15 after a highly successful two-year stint running the company.

Short-Term Contraction

Looking forward, Intel anticipates making $17.5 billion with EPS of $1.10 in Q1 2021. Compared to last year, the corporation predicts a 12 percent year-over-year contraction in revenue and a 24 percent profit shortfall. Its negative near-term outlook is due to an expected 25 percent drop off in data center sales.

CFO George Davis said his company believes its PC chip sales will be strong in the current period. However, he cautioned that desktop processor revenue would be down throughout 2021. He also warned that COVID-19 is suppressing demand for its Internet of Things (IoT) products.

It is worth noting the corporation’s forecast does not include income from the sale of its NAND and storage assets to SK Hynix. Barring any regulatory conflicts, the firm will receive $7 billion across 2021 as part of the $9 billion transaction.

Renewed Long-Term Focus on Leading the Chip Sector

Intel’s next chief executive did not nail down specifics about the chipmaker’s long-term manufacturing plans.

But Gelsinger did express approval of the firm’s progress with developing its 7nm production process. He indicated it would internally fabricate the products it releases using that node in 2023. He also declared the corporation will re-assume its position as the world leader in chip-making technology.

In addition, Gelsinger says Intel would increase its use of outside foundries to make some items. The CEO-elect believes Intel’s future is becoming an IDM with best-in-class processes that also utilizes “external capabilities.” Gelsinger said he would further elaborate on its roadmap, including its 2021 earnings projection, in April.

Following Intel’s Q4 earnings financial release, the corporation’s stock price dipped by 5.7 percent. Market watchers attributed the change to Gelsinger not pronouncing a systemic change to the organization’s operations. However, his commentary does not necessarily mean that the company is in for a protracted decline.

Nothing the executive said contradicts accounts that Intel will partner with TSMC and other foundries to ramp up its output. With $21.1 billion in free cash flow, it has the capital to outsource the production of many next-generation components. The semiconductor industry veteran could be waiting until he officially takes power before making any dramatic announcements.

Having put in 30 years at Intel, Gelsinger has a keen understanding of its strengths and weaknesses. Right now, he has faith it can execute a return to greatness as an IDM. Time will tell if his optimism is justified.

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