Intel is ‘still on track’ to hit manufacturing transition goals within next four years: Analyst

Moor Insights & Strategy Founder, CEO and Chief Analyst Patrick Moorhead speaks with Yahoo Finance Live about Intel's latest quarterly results, why it was a disappointment, and the possible silver lining.

Video transcript

- Let's take a look at shares of Intel. You can see it off nearly 6% here after hours. The company missing on both the top and bottom line. Also, its guidance for the current quarter coming in a bit late. Let's talk about, what it means going forward. We want to bring in Patrick Moorhead of Moorhead insights and Strategy founder and CEO. Patrick, great to see you here. So first, Street's obviously concerned about these numbers. What's your take?

PATRICK MOORHEAD: Yeah. This was not a pretty quarter at all. And there's really three things going on here. First of all, there are some macroeconomic issues that are weighing on it. PC market is down 30%. Intel was down more than that. But I think that's really just a inventory balancing. The biggest thing is Intel is in the middle of a multiyear transformation.

It got into this huge foundry space with IFS. So huge capital expenditures around the world. They're entering new markets like graphics and AI. They're even re-architecting their chips to use chiplets in 3D packages. And the third thing is competitive pressure. AMD and servers and PCs and also pressure from homegrown chips developed internally by companies like Apple and AWS.

- They were at least at one point not too long ago kind of the leader in this space. What's happened to that leadership position?

PATRICK MOORHEAD: Yes. So first of all, they do have 80-some percent market share in both of these giant markets. One thing that happened is Nvidia got the jump on using GPU as a chip for AI. So that pulled away some of that revenue. The biggest issue happened three or four years ago that Intel is still trying to make up for. And that was challenges in the core technology to make chips. The smaller you make the chips, the faster performance you can make them and lower power.

And they took a what I consider a two-year lead and turned that into a three-year deficit. And that's what they're in the process of doing now. And turnarounds for a chip company, those don't happen in a year. These are five-year bets. And the latest information that I've picked up from Intel CEO Pat Gelsinger is that they are still on track to hit these five what are called nodes or manufacturing technology transitions in four years.

- Patrick, is this the time you expect to hear some heavy criticism of Pat Gelsinger, who made $180 million in 2021? Still haven't heard what he did last year. But are you expecting those calls to be louder?

PATRICK MOORHEAD: Yeah. I am expecting that, primarily for the people who don't understand the semiconductor industry because here's the challenge. Unlike any other technology out there, these are five-year bets. And, quite frankly, Gelsinger came into a challenge. Not only were his products not nearly as competitive as they needed to be, but his manufacturing was behind by over two years. But even with that said, there will be cries. There will be some criticism out there.

And I do understand this. But this isn't like a consumer packaged goods company that can turn up the spigot on marketing or turn down the spigot on marketing and make something happen. This is real science. This is real technology. And I'm actually bullish about Intel's future.

But I think it's going to be a challenging 12 to 18 months out there, potentially even longer if the economy doesn't help the company because a very large percentage of its cash dollars, its profit dollars, come from the PC market that right now is absolutely in the tank. The good news is the data center market, it's still cranking. I mean, we're probably going to see 19% growth in this fourth quarter. And because these investments buttress consumer services, you can't just turn those off. And these hyperscalers are doing their buildouts. I think there's still going to be demand in those areas.

- Patrick, given the fact that the stock's down over 40% in the last year, you mentioned the tough PC environment, obviously tougher competition, has all of that risk been already priced into the stock? Or do you think we can kind of see a little bit more downside risk ahead for Intel shares?

PATRICK MOORHEAD: Yeah. Unless there's-- this all centers around what CEO Pat Gelsinger says. Five nodes or five shifts in four years. I believe if Intel can hit this trajectory, and the company is releasing a lot of detailed information on that, I don't think you're going to see a massive decline outside of something that might happen in the sector. So what I'm talking about are self-inflicted wounds. And so far, so good. But that's what investors should be keying off of because that is the key to this company's turnaround.