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Earnings Outlook: Intel earnings to give first look on how shortages are affecting U.S. chip makers in 2021

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Intel Corp. — like every other major chip maker — will have its quarterly earnings report probed for how quickly the industry is managing to ease supply issues that have plagued semiconductor customers for most of COVID-19.

Intel
INTC,
-2.30%

is scheduled to report first-quarter earnings on Thursday after the close of markets. The report will be the first with Pat Gelsinger officially presiding as chief executive, after the newly announced successor to Bob Swan spoke on the conference call last quarter about his assessment of the company’s turnaround plans.

Gelsinger has already made waves since taking over. He announced an ambitious manufacturing expansion plan last month and, more recently, told Reuters that Intel was in talks with companies thatdesign chips for auto makers to start manufacturing those chips for them to resolve widespread supply shortages.

 Read: Worldwide chip shortage expected to last into next year, and that’s good news for semiconductor stocks

While those plans have drawn praise from most of the investment community, they’re starting to get some pushback from analysts who are wondering if Intel can turn the aircraft carrier around in time. This past Thursday, Intel’s stock received a downgrade to “underperform” from Raymond James’s Chris Caso on concerns that the chip maker’s path to regain its former glory may come up short.

First-quarter results aren’t expected to show an immediate turnaround for Intel as revenue looks to decline year-over-year for a third-straight quarter, and earnings are expected to drop off significantly from a year ago. That’s a big reason investors will be more interested in hearing more about Gelsinger’s long-term plans and how Intel can take advantage of the current semiconductor shortage to find a needed boost.

What to look for

Earnings: Of the 35 analysts surveyed by FactSet, Intel on average is expected to post adjusted earnings of $1.15 a share, which would be down from $1.45 a share reported in the year-ago quarter. Intel forecast $1.10 a share. Estimize, a software platform that uses crowdsourcing from hedge-fund executives, brokerages, buy-side analysts and others, calls for earnings of $1.22 a share.

Revenue: Wall Street expects revenue of $17.79 billion from Intel, according to 30 analysts polled by FactSet. That would be down from the $19.83 billion reported in the year-ago quarter. Intel predicted revenue of about $17.5 billion. Estimize expects revenue of $19.23 billion.

Analysts expect revenue from client-computing, the traditional PC group, to come in at $10.17 billion, data-center sales of $5.89 billion, nonvolatile memory solutions revenue of $487.1 million, “Internet of Things,” or IoT, revenue of $899 million, and Mobileye revenue of $337.7 million.

Stock movement: Intel stock rallied 28.5% over the first quarter. Over the same period, the Dow Jones Industrial Average
DJIA,
-0.49%

— which counts Intel as a component — rose 7.8%, the S&P 500 index
SPX,
-0.62%

rose 5.8%, the tech-heavy Nasdaq Composite Index
COMP,
-1.14%

gained 2.8%, and the PHLX Semiconductor Index
COMP,
-1.14%

rose 11.8%.

What analysts are saying

While Raymond James’s Caso isn’t optimistic about Intel’s long-term prospects, he said that doesn’t apply to the short term.

“Our call isn’t a call on the quarter — the company already noted upside for in 1Q and provided full-year guidance a month ago, and we believe near-term conditions remain solid,” Caso said.

Morgan Stanley analyst Joseph Moore, who has an overweight rating on Intel, said doesn’t he expect any “big surprises out of Intel” this earnings report.

“While the compute markets are quite strong especially notebook PCs, we would like to highlight that Intel does have some supply related challenges in 2q; given the shortages of substrates and other supply constraints, which were drawn down in 1q, supply has to be down in 2q — and our understanding is that the issue is more significant in the higher end, which will drive a mix shift to the low end,” said Moore. “So we are marginally more cautious than consensus for 2q, but we wouldn’t expect any material change to full year guidance which was just a few days ago.”

Similarly, Evercore ISI analyst C.J. Muse said he doesn’t expect much in the way of surprises from Intel, the short-term could be rocky.

Must said “we think there could be some more near-term negative data-points as Intel navigates its “transitional” year with a significantly disadvantaged product set vs. the competition.”

Cowen analyst Matthew Ramsay, who has an outperform rating and a $80 price target, said investors should focus on whether Intel provides an update on data-center growth and sustainability and whether there are any signs of a recovery in enterprise and government server sales.

Additionally, Ramsay said it would be helpful if Intel addressed Advanced Micro Devices Inc.’s
AMD,
-1.68%

renewed x86 portfolio of products, and provided more granularity into its 7-nanometer product timeline and road map.

Of the 41 analysts who cover Intel, 16 have buy ratings, 15 have hold ratings, and 10 have sell ratings, with an average target price of $67.24, according to FactSet data.

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