After Intel (NASDAQ:INTC) issued its quarterly revenue/profit warning last week, the sell-side weighed in. Thanks to Barron's, investors can find a good summary of the analyst commentary here. In particular, what I found interesting was the commentary from Cowen's Timothy Arcuri (who, according to Barron's, has a $36 price target and a market perform rating).
He made the following two observations:
- "Skylake timing remains at risk" -- which Arcuri claims is backed by his company's work in Asia.
- "10nm timing remains a huge question for [Cowen's analysts]."
I'll address in a moment why these two points are particularly noteworthy, and why Intel management needs to address them on its upcoming earnings call.
A Skylake delay wouldn't be ideal
Intel's executives have been talking up its next-generation Skylake architecture quite a bit in the press. Further, Intel's Kirk Skaugen -- who heads up the company's PC chip division -- has talked about how some PC vendors are outright skipping the recently released Broadwell chips and will launch their next-generation systems when Skylake hits.
If Skylake is delayed, then there is a chance many PC vendors don't update their systems. Without newer, more attractive systems, the PC vendors will be stuck selling last year's systems (and whatever machines got upgraded to Broadwell in early 2015). That's not a great position to be in when it's already tough to convince customers to upgrade.
Now, I'd argue that it's not so much the processor that's so important, here. Yes, it's better, faster, more efficient, and so on. However, if the PC vendors didn't allocate much of their design efforts into the Broadwell computers that will be launched (as implied here), and if Skylake-based machines are designed with more compelling system-level features (i.e., wireless charging, Real Sense, and so on), then delays of Skylake-based systems could negatively impact consumer-oriented PC sales in the second half of 2015.
So, about that 10-nanometer timing?
Intel has routinely touted that its "manufacturing leadership" is a major ingredient of its success. Chips based on its 14-nanometer technology were delayed thanks to manufacturing issues, which led to delays in PC, mobile, and likely server chips.
When asked about the timing of the launches of its next-generation 10-nanometer chips at investor events, Intel has been uncharacteristically mum. At the same time, Intel's Mark Bohr (a senior fellow with Intel responsible for logic technology development) is telling reporters at trade shows that the company "doesn't expect to have similar [manufacturing] problems at 10 [nanometer]."
And now we have an analyst claiming that "10nm timing remains a huge question."
I think Intel needs to either come clean on any potential delay of its 10-nanometer schedule or reassure investors that things are going well, depending on what the truth actually is.
I find it difficult to believe Intel's claim that by telling its investors how things are going on the 10-nanometer front that its competitors "can adjust." Given that it takes years to develop and qualify semiconductor manufacturing technologies, I don't think "adjustments" based on public statements to investors in any sort of meaningful time frame are feasible.
If you've got some good news, Intel, now's the time for it
For the next month or so until the April earnings report, it's not going to be easy to own Intel because of the uncertainty that exists around its financials in 2015.
Come April, in addition to providing updated guidance, I think shareholders would appreciate more detail on both the timing of Skylake and the timing of 10-nanometer product launches (both Core and Atom). Will Intel give that to investors? We'll know soon enough.