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Jan. 26, 2022, 1:02 p.m. EST

Intel still has a lot to prove to Wall Street one year after Pat Gelsinger came home

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By Wallace Witkowski

Intel Corp. had a rough 2021, and it looks like the chip maker will still face Wall Street criticism in 2022 for its ambitious capital investment plan and the success of competitors amid continuing delayed releases.

Intel /zigman2/quotes/203649727/composite INTC +1.03% is scheduled to report fourth-quarter earnings on Wednesday after the close of markets, a little more than a year after Intel first announced that Pat Gelsinger would be taking the helm as chief executive, and three quarters since Gelsinger first announced his plans for an aggressive build-out.

Read: Chips may be sold out for 2022 thanks to shortage, but investors are worried about the end of the party

Bernstein analyst Stacy Rasgon, who has an underperform rating on Intel and a $40 price target, said his year-ago preview titled “Don’t think it can’t get worse,” is “a theme that is seemingly playing out as we speak.”

Pulling no punches, Rasgon said he has remained negative on Intel “as they blow up their model in order to atone for 10 years of sin with margins coming down, capex ballooning, and free cash flow nonexistent even as they outline an aggressive road map fraught with risk, with outlandish growth targets in the long term and PC risk in the near term.”

Expect those declining profit margins to be front and center on Wednesday, after Gelsinger told analysts last quarter that under-pressure margins will remain “comfortably above 50%,” as it builds out its capacity to make silicon wafers. Excluding Intel’s divested memory business, the company reported gross margins of 57.8% for the third quarter, and forecast 53.5% for the fourth quarter. In comparison, Intel reported margins of 59.4% in the second quarter, and 58.4% both in the first quarter of 2021 and fourth quarter of 2020.

With silicon-wafer fabricators rushing to build out their manufacturing capacity to meet the COVID-sparked global chip shortage, Intel said in October it expects to spend $25 billion to $28 billion to build out its capacity in 2022, up from $20 billion in 2021. Intel also recently announced plans to spend more than $20 billion in Ohio to start building out what it claims will be the “one of the largest semiconductor manufacturing sites in the world” at a total investment of $100 billion over the next decade.

See also: Intel confirms plan to spend more than $20 billion to build chip ‘mega-site’ in Ohio

Intel’s quarterly results also come just a few weeks after the chip maker announced it poached Micron Technology Inc.’s /zigman2/quotes/205710729/composite MU -0.71% Chief Financial Officer David Zinsner, and named Michelle Holthaus to head its largest business unit, client computing, better known as the PC business. Also, on Wednesday, Intel received some good news in that it won an appeal against a $1.2 billion E.U. antitrust fine.

What to look for

Earnings:  Of the 37 analysts surveyed by FactSet, Intel on average is expected to post adjusted earnings of 90 cents a share, down from the $1.52 a share the company reported a year ago. Intel forecast 90 cents a share. Estimize, a software platform that uses crowdsourcing from hedge-fund executives, brokerages, buy-side analysts and others, calls for adjusted earnings of $1.10 a share.

Revenue:  Wall Street expects revenue of $18.33 billion from Intel, according to 30 analysts polled by FactSet. That would be down from the $19.98 billion reported in the year-ago quarter. Intel predicted revenue of $18.3 billion. Estimize expects revenue of $18.59 billion.

Analysts surveyed by FactSet expect revenue from client computing to come in at $9.59 billion; data center revenue of $6.73 billion; nonvolatile memory solutions revenue of $1.06 billion; “Internet of Things,” or IoT, revenue of $1.06 billion; and Mobileye revenue of $355.1 million.

Stock movement:  Don’t expect an automatic bounce if Intel beats expectations — Intel shares have declined following the company’s past six quarterly earnings reports in which earnings topped Wall Street estimates. Following the company’s last earnings report, the stock dropped nearly 12% after revenue missed expectations for the first time in 10 quarters, but more likely on concerns about how Intel’s aggressive capital expenditure plan would hurt profit margins. Shares are still more than 6% below the stock’s closing price before that drop.

Intel stock declined 3.3% overall in the December-ending quarter. Over the same period, the Dow Jones Industrial Average  /zigman2/quotes/210598065/realtime DJIA +0.27%  — which counts Intel as a component — rose 7.4%, the S&P 500 index  /zigman2/quotes/210599714/realtime SPX -0.38% advanced 10.7%, the tech-heavy Nasdaq Composite Index  /zigman2/quotes/210598365/realtime COMP -1.29%  gained 8.3%, and the PHLX Semiconductor Index  /zigman2/quotes/210598361/realtime SOX -0.32%  surged 21%.

What analysts are saying

Morgan Stanley analyst Joseph Moore, who has an equal-weight rating on Intel, said he doesn’t expect any big surprises following “last quarter’s fireworks,” adding that he expects Intel’s manufacturing headcount to go higher than expected.

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