On Jan. 24, chip giant Intel (INTC 6.53%) reported its financial results for the fourth quarter of 2018 and issued financial guidance for the entirety of 2019. The company's results and outlook both fell short of expectations, sending the shares tumbling.
During the conference call that accompanied the results, Intel management provided a number of insights that current and potential investors in the company should pay attention to. Here are the five that I'd like to highlight.
Image source: Intel.
When does the processor shortage end?
As you might recall, Intel warned back on its Oct. 25 earnings call that it simply didn't have the manufacturing capacity in place to meet all of the demand that it was seeing for its products during the fourth quarter. As a result, the company prioritized the production of its Xeon data center chips and its higher-end Core processors for the PC market at the expense of its lower-end PC processors as well as its Internet of Things (IoT) business.
CFO and interim CEO Bob Swan admitted on the company's most recent earnings call that "when the dust settles on PC [total addressable market], our expectation is it was probably flat and our shipments were down 2%" saying that the company "delivered every product that we could right up through December 31st."
"So we did have some constraints on the ecosystem and on our customers during the course of the quarter," Swan explained.
When does this shortage end? According to Swan, "Our expectation is working with our customers that we will be through the supply constraints as we exit the second quarter of the year."
10-nanometer tech update
Intel's next-generation chip manufacturing technology, currently referred to by the marketing name "10nm," is years late to production. Since many of the company's future products rely on this technology -- Intel showed off multiple pre-production parts built using this technology during its CES 2019 presentation -- investors should be interested in updates on how this technology is progressing.
Chief Engineering Officer Murthy Renduchintala explained on the call that he "[feels] better about our [10nm] traction today than I did 90 days ago."
"So that continues to bode well for our product launch ambitions, which Bob [Swan] summarized as having systems on shelf for holiday season in 2019 with a barrage of products across all our businesses to follow shortly thereafter," he added.
Fighting back
On the call, analyst John Pitzer asked management the following question: "And importantly, how are you thinking about increased competition in 2019 in the data centric businesses, especially in the server business as you think about mid-single-digit year-over-year growth?"
Swan said that "we're going into 2019 with every expectation to compete, to protect our share position across our entire business" and that "we're obviously investing in the capital required to ensure we don't constrain our customers' growth."
Where's the CEO?
As you might remember, Intel's last permanent CEO, Brian Krzanich, resigned back in June 2018. More than seven months later, the company has yet to name a permanent successor to Krzanich. The company's permanent CFO, Bob Swan, has been serving as interim CEO as the search continues.
While Bloomberg reported on Jan. 14 that the company's board of directors wanted to pick its new CEO by Jan. 24, that obviously didn't happen.
On the call, Swan did provide an update, though, saying that he is "convinced the board will close on a new CEO in the near future and I believe the management team, my self and 107,000 employees will rally behind him or her to take this company to a whole new level."
Memory perspective
On the call, analyst Ambrish Srivastava had the following to say:
Bob, I just wanted to go back to the NSG and the profitability in what was a really booming year for memory. Obviously, prices started to come down back half of the year but NSG was barely profitable. So just from a CFO perspective, what is your tolerance level for having a business segment that could go into a deep cyclical downturn and -- not could, it is heading into a deep cyclical downturn. So how do you think about having a commodity within the Intel umbrella and again, the tolerance for lack of profitability?
Swan said that he's "not too excited" about "having a commodity in the portfolio," which is "why the investments we're making in memory are for what we believed differentiated technology both in the manufacturing process capabilities of 3D NAND, but also the differentiated technology for Optane and the role it plays, both on the PC side but most important for us on the data-centric side."
In other words, Intel isn't investing in memory so that it can be just another commodity memory manufacturer, but so that it can build products that can complement and strengthen its platform offerings in its core businesses.
