When Intel (NASDAQ:INTC) posted a modest drop in gross margins and delayed its 7nm manufacturing, the stock fell 16% on the day. What went wrong with the chip giant?
Intel posted earnings of $1.19 a share. Revenue rose an impressive 19.4% to $19.7 billion. But the gross margin of 54.8% is below the 55.9%.
The company is facing growing pressure from AMD (NASDAQ:AMD), which locked in all-time highs, and from higher research and development costs.
Seven analysts, late to the sell call, as usual, cut their rating to either a Hold or a Sell. For around two years, Intel could afford to stumble in its structural issues. Yet the time is running out. AMD’s desktop CPU, Ryzen, its EPYC server, and its integrated chip all perform better than Intel’s offering.
Value investors will want to avoid Intel for at least two years. It will need to wait for management leadership and operational execution to get back on schedule. That could take a while. AMD went through a painful transition that took around seven years. It had to work down debt, spend shrewdly in R&D, and build its market.
Intel needs to figure out why product refresh is delayed. If market share loss accelerates, the stock’s dividend is at risk and gross margin will fall further.
