What happened
Shares of semiconductor giant Intel (INTC +4.85%) are having a terrible market day this fine Friday. The stock trades 8.8% lower here at 3:10 p.m. EDT, following the release of solid second-quarter results and boosted full-year guidance -- accompanied, however, by subtle signs of potentially big manufacturing problems ahead.
So what
In the second quarter, Intel's revenue rose 15% year over year to land at an even $17 billion. Adjusted earnings jumped 44% to $1.04 per share. Your average analyst would have settled for earnings near $0.96 per share on sales somewhere near $16.8 billion.
Looking ahead, Intel raised its full-year revenue guidance 7% to approximately $69.5 billion. The full-year earnings target was moved 8% higher at roughly $4.15 per share. Both of these new guidance goals sit well above the current Wall Street views.
But the company also said that its move to the next-generation 10-nanometer manufacturing node will result in commercial production volumes no earlier than the second half of 2019. That's slower than expected, and it could give rival Advanced Micro Devices (AMD +3.36%) some space to make inroads into Intel's dominant share of the data center market over the next year.
Image source: Getty Images.
Now what
Manufacturing yields are improving from the low levels Intel reported in April, but it's a slow process. On the earnings call, chief engineering officer Murthy Renduchintala tried to assure analysts and investors that everything is fine:
We're very pleased with the resiliency of our 14-nanometer road map. In the last few years, we've delivered an excess of 70% product performance improvement as we've moved through our 14-nanometer generation of products. As we look at 2019 across both the client and data center space, we feel very good about the product competitiveness of our 14-nanometer program.
In other words, investors shouldn't worry about slow 10-nanometer progress because the previous generation is doing just great. In fact, Renduchintala suggested that this strength is part of the reason the 10-nanometer upgrade isn't moving faster -- there's just no need for it.
Investors aren't buying that explanation today, and maybe that's the right reaction. Intel's shares have still gained a market-crushing 50% so far in 2018, including today's swift haircut. Now it's up to Intel to prove that it can deliver results from a slightly outdated technology node.
AMD investors took heart from this report, of course. That stock jumped as much as 8.3% higher before settling down to a 2.7% gain as of this writing.
