On July 26, chip giant Intel (INTC +5.75%) is set to report its financial results for the second quarter of 2018. In a sense, the numbers that the company puts out that day aren't going to be that interesting -- it already announced on June 21 that revenue for the quarter totaled $16.9 billion and earnings per share came in at $0.99. Both figures were solidly ahead of analyst expectations.
Although the company's financial performance in the second quarter of 2018 was clearly solid, and while I think it's likely that its full-year performance will be nothing short of excellent, investors don't seem to be too excited about the stock: Shares are down meaningfully from the 52-week high that they set in early June.
Image source: Intel.
I think that lack of excitement is due in no small part to uncertainty around key aspects of the company's business and technology execution. On the July 26 earnings call, it has the opportunity to provide some real answers to investors that might clear up that uncertainty.
To that end, here are four questions that I'd like to hear Intel answer on its upcoming earnings conference call.
1. How's the CEO search going?
In addition to announcing earnings on June 21, the company also said that Brian Krzanich had tendered his resignation from the CEO position following the company's discovery that Krzanich had engaged in a "consensual relationship" that violated the company's fraternization policy.
At the time, the company also announced that it "has a robust succession planning process in place and has begun a search for a permanent CEO."
That search, Intel said, will include "both internal and external candidates" and will be aided by "a leading executive search firm to assist in the process."
I'd like to hear from management on the earnings call about how this CEO search is going and what the timeline is for the completion of this search.
2. Update on 10-nanometer progress
Intel's 10-nanometer chip manufacturing technology, which the company says offers a substantial boost in performance per watt compared to its currently shipping 14-nanometer technology, was originally supposed to go into manufacturing at the end of 2015 to support product launches in 2016.
However, the technology kept slipping and is now expected to go into mass production sometime in 2019 thanks to issues with the yield rate of the technology (yield rate refers to the percentage of chips produced that are commercially viable).
What I'd like to hear from Intel on the July 26 call are the answers to the following questions:
- How much progress has Intel made in improving 10-nanometer yield rates over the last three months?
- Based on the current state of the technology, when does the company expect to start mass production of products using the technology?
- What percentage of the company's total chip shipments in 2019 does Intel expect to come from products built using 10-nanometer tech?
3. Longer-term chip manufacturing position
In early 2017, Intel hosted a chip manufacturing technology event during which it took the opportunity to talk about how its 10-nanometer technology was roughly a full generation ahead of competing 10-nanometer chip technologies in terms of chip areal density.
The reality, though, is that both Taiwan Semiconductor Manufacturing Company (TSM +1.22%) and Samsung (NASDAQOTH: SSNLF) went into mass production on their respective 10-nanometer technologies in late 2016 and products built using those technologies came out in the first half of 2017. Intel's 10-nanometer technology still isn't in mass production.
Those 10-nanometer technologies were, of course, less dense than Intel's 10-nanometer technology, but they are ahead of Intel's currently shipping 14-nanometer technology. Moreover, TSMC began mass production on its 7-nanometer technology several months ago, which should be roughly as dense as Intel's 10-nanometer technology.
So, right now, it looks like Intel is behind the competition -- at least in the metric of chip density (a metric that Intel made the focus of its manufacturing technology presentations and commentary over the years).
The questions I'd like to hear answered are the following:
- Does Intel have a plan to try to improve its competitive positioning in chip manufacturing? If so, what's the thrust of that plan?
- Is Intel considering strategic alternatives in case it can't improve the competitiveness of its chip manufacturing technologies, such as moving the manufacturing of key products to, say, a third party?
4. View of competitive positioning in key markets
Krzanich caused some drama when he reportedly told an analyst in a "matter-of-fact" way that the company would start losing market segment share in its core data center business during the second half of 2018 to a competitor.
In an apparent attempt to put out the proverbial fire, Intel issued the following statement:
We see significant opportunities for growth in the data center -- an estimated $70 billion market opportunity by 2021 where we have an opportunity to grow our total silicon datacenter market segment share from where we are today. To win, we will continue our history of CPU leadership and deliver the broadest portfolio of products that, when combined, change the basis of competition in the data center.
While we are prepared for a more competitive environment as we move through 2018, we've already factored that into our financial forecast and we're in a great position to compete. We remain very confident in our products, our roadmap and our competitive position. For example, Intel Xeon processor Scalable family represents the biggest advancements in platform capabilities in a decade, and later this year we'll introduce breakthrough new Intel Optane DC persistent memory and storage technology architected specifically for the data center.
This is a carefully crafted PR statement, but it doesn't tell us much -- I want more. What I'd like to hear from Intel on the upcoming earnings call is a detailed explanation of the company's view of this "more competitive environment," as well as its strategy to defend its large and lucrative share in both its data center and personal computer chip markets.
Moreover, Intel might, if left unchecked, only talk about its view of the competitive environment that it'll face in the second half of 2018. So I'd like to hear the company provide some insight into how it views the competitive environment in 2019 in both its data center and personal computer chip businesses.
