Do you ever wonder what life must have been like in Rome a few centuries after the Roman Empire fell? People still lived in the city, surrounded by the ruins of past grandeur. They knew they had once lived in splendor, but now everything was decay. Did they still abide by old habits or did they instead plan for their future? We thought about this a lot yesterday while listening to Intel report its 4Q23 results.
To be clear, the quarter was good. They reported revenue of $15.4 b and EPS of $0.54, comfortably ahead of expectations of $15.1b and $0.45 respectively. But the guidance…. They project Q1 revenue of $12.7b and a return to losses per share of ($0.25). The Street was expecting more – $14.2b and positive earnings of $0.33. A profound miss.
That guidance so was bad we first assumed that we were missing some one-time charge, or the removal of one of their to-be-spun-off reporting units from results – but that was not the case. Management explained the weak Q1 as stronger-than-usual seasonality, and shortfalls in those non-core businesses. And this is where the real problem lies.
Intel has spent the past two years asking investor to have faith in their turnaround. Over that time, they have steadily climbed to the top of investors’ wall of worry. And last quarter they seemed to have gotten over it entirely. It was an impressive journey, and like many others we wanted to give them credit for finally ‘turning the corner’. They lost all that credibility yesterday.
It is not so much the return to losses that concerns us as the way in which Intel management communicated their outlook. At times they seemed to not understand the scale of the miss. They repeatedly said how proud they were of their accomplishments and how optimistic they were about the future. Maybe great things do lie ahead for Intel, but in the moment it was hard to believe what they were claiming.
To be fair, the company maintains that revenue and earnings will grow in 2024. They pointed to manufacturing process improvements, new products, new customers and new technology. For the life of us, we do not understand if that is true why they did not provide full year guidance.
Instead, they sounded like the Intel of old – “We will look past any problems today, because the next process node is coming soon and that will wash away all sins.” The next quarter is very soft and they still have a lot of money to spend which calls into question cash flow – but backside power is awesome.
We have long held that the chief problem facing Intel as it seeks to turn itself around is its own culture. Management commentary today sounded like the answers a company with 90% market share would give, not a company with 40% market share. This is not the time to revert to the habits of past days of glory. Intel can still turn things around, but they need to rethink how they communicate their progress, their strategy and their business.
Photo Credit: Microsoft Co-Pilot