Last year, the chip giant Intel's life was not easy. First, the 7nm chip was postponed again, and then it outsourced cutting-edge technology and sold its NAND memory business. And this year, Intel took the initiative to make a "change of command" action and bravely made changes in the face of the decline. Many business and personnel adjustments have aroused investors' concerns about its prospects.
Under the ups and downs of market sentiment, Intel announced its fourth quarter 2020 financial report on January 21, Eastern Time. Among them, revenue and net profit rebounded from previous quarters. But the stock price performance was the opposite. After the market, the stock price fell by 4.66% to $59.55, and the market value fell below $2555961 billion.
Since last year, Intel has been frequently challenged by competitors, and its share price performance has long been subject to external controversy. The cumulative decline last year was nearly 13%; on the contrary, Nvidia and AMD rose more than 120% and 89% respectively last year.
As AMD, Nvidia and other giants take advantage of this year's pursuit, Intel will undoubtedly become more passive. Looking back at the financial report before the "change of coaching", what are the legacy issues of Intel that need to be resolved by the new CEO?
Revenue rebounded to end for the fourth consecutive quarter of shrinking, Intel’s transformation pains have not been eliminated
In the fourth quarter of 2020, Intel’s revenue recorded US$19.98 billion, a year-on-year decrease of 1.14%, which was higher than Wall Street’s previous average estimate of US$17.48 billion.
Even if revenue in multiple quarters last year exceeded expectations, it is difficult to conceal the fact that its performance growth is weak. From Q4 of 2019 to Q3 of 2020, revenues were US$202.1, 198.3, 197.3, and 18.33 billion, which have shrunk for four consecutive months.
Among them, the data center, as Intel's core business in recent years, is the main part that affects overall revenue changes. The financial report shows that the data-centric business this quarter was 8.821 billion U.S. dollars, down 12% year-on-year. The year-on-year growth rate is not satisfactory.
The business can be specifically divided into:
· The data center portion was US$6.1 billion, a year-on-year decrease of 16%;
· The IOTG portion was US$777 million, a year-on-year decrease of 16%;
· Autonomous driving Mobileye part is 333 million US dollars, an increase of 39% year-on-year;
· The PSG portion was US$422 million, a year-on-year decrease of 16%;
(Image source: SEC website)
The first department contributed most of the revenue, and its decline will undoubtedly seriously drag down Intel’s overall performance, which is also the key reason why it is difficult to achieve substantial growth in revenue this quarter.
In this regard, the management explained in the financial report that the epidemic has caused economic weakness, thus suppressing the demand for data centers from global enterprises and governments. Previously, Dell'Oro Group Data Center Capital Expenditure Research Director also expressed similar views.
At present, the vertical industries that have been hit by the economy, especially the physical retail industry, tourism, hotel industry, and small and medium-sized enterprises, have tightened IT spending. Therefore, if you want to resume related payments, you need to wait for the business environment to stabilize.
It is worth noting that Intel previously occupied about 94% of the data center market share, but now the situation has changed. In the data center business of AMD and Nvidia, the competitive risks brought to Intel cannot be ignored.
Although the former did not disclose the specific data of the data center business in detail, after the server CPU market made a comeback, the market share is continuing to expand.
The latter recently announced the launch of the data processing unit (DPU) at the GTC conference to take over more tasks in the data center and announced plans to develop new chips. Intended to compete for more market share from the main competitor Intel CPU.
The bigger threat actually comes from the acquisition of AMD and Nvidia. Whether it is AMD's deal with Xilinx or Nvidia's deal with Arm, they will provide users with various data center products that compete with Intel.
Therefore, it is foreseeable that Intel’s dominant position in the data center will not disappear quickly, but as competition intensifies, it may lose a lot of market share. Coupled with the severe economic environment, Intel needs to think about how to improve its competitiveness through lower cost and stronger products.
PC revenue hit a two-year high, but Intel's "Moore's Law" fell behind
Data-centric business is Intel's core, and the old PC business is still the company's "cash cow". The financial report shows that the PC business revenue in the fourth quarter was 10.9 billion US dollars, a year-on-year increase of 9%.
Affected by remote home office work, the demand for personal mobile PC products has increased, and the demand for desktop PC products has also increased to a certain extent. Among them, the sales of personal computers increased by 33% year-on-year.
Even so, from the year-on-year growth rate of PC business revenue, it can be seen that its growth has gradually stabilized. When Intel occupies a stable market share in the PC market, it also faces pressure from competitors. In the consumer chip market, the threats of AMD and Nvidia should not be underestimated.
In the third quarter, AMD’s revenue from the computing and graphics division was US$1.667 billion, higher than the US$1.276 billion in the same period last year.
AMD has maintained substantial growth in this business for several consecutive quarters.
After Su Zifeng took office as CEO, he reconstructed AMD's product strategy. In terms of architecture, AMD released Zen2 7nm products in 2019, and the IPC of the new Zen2 architecture has increased by 15%, realizing the overtake of Intel;
In terms of technology, AMD chose to cooperate with TSMC, betting on the 7nm process, and quickly completed the surpassing of Intel. In particular, Intel’s 10nm mass production time has been delayed repeatedly, giving AMD’s CPU processors a good opportunity to seize the market.
Its own technology integration covers notebook computers, desktop computers, cloud computing, high-performance computing (HPC) and next-generation game consoles. This has become the reason why AMD's profits and stock prices have soared.
In July last year, Nvidia successfully surpassed Intel with a market value of $250 billion, and has since risen to $340 billion.
In the promising AI field, Nvidia has taken the lead, while Intel has been slow to enter these scenarios.
Among processor manufacturers, Intel has been unable to keep up with the rhythm of TSMC and Samsung. To make matters worse, Intel’s traditional customers, such as Apple, Microsoft, and Amazon, are already developing their own in-house chip solutions, which are manufactured by TSMC and Samsung. In the future, they may gradually break away from dependence on Intel.
At the crossroads of history, where will the new CEO lead Intel?
At present, Intel is facing another crisis since its establishment 52 years ago, and it undoubtedly needs to make a cautious choice. Looking back, Intel has encountered more than one moment of survival.
In 1985, Intel also positioned itself as a memory company. But at this time, the memory manufacturers in Japan have grown stronger, allowing users to buy high-quality products at an astonishingly low price.
This kind of price war almost squeezed Intel out of the market. At that time, Intel suffered losses for six consecutive quarters. The industry generally doubted whether Intel could survive.
When everyone believed that Intel was equal to memory, CEO Grove decisively cut memory production and made microprocessors a new focus of production.
Since then, Intel has called itself a "microcomputer company." By 1992, the great success of microprocessors made Intel the largest semiconductor company in the world, even surpassing the Japanese company that defeated it in the memory business.
Foreign media commented that if Noyce is the soul of Intel and Moore is the heart, then Grove is Intel's fist.
"If you want to predict what will happen in the next 10 years, you have to look back at what happened in the past 10 years." Grove followed this rule and led Intel through many ordeals safely.
Today's Intel has once again come to the crossroads of a turning point in fate, but this choice will soon be handed over to the new CEO Pat Kissinger.
For now, Intel may choose to outsource some of its chips. Citi analyst Christopher Danely pointed out in his latest research report that Intel is about to announce the expansion of cooperation with TSMC, and some chips will be handed over to TSMC.
Although Intel's net profit will be affected, it can rely on better design to gain product advantages. Imagine that Pat Kissinger can successfully bring Intel's manufacturing process back on track, but it is difficult to eliminate the disadvantages relative to TSMC in a short time.
Intel is not yet ready to give up its manufacturing business, but try to avoid competition with TSMC or the choices it has to make.
Going back to the key business, the PC business, as Intel's most advantageous part, also has the potential to lead the industry in the future.
In the second half of last year, Intel launched the Evo platform, and its platform strategy has begun to take shape. At present, more than 50 products that have passed Evo's stringent certification are on the market.
In addition, Autonomous Driving Mobileye is currently the fastest growing business sector, and with the development of this industry, huge room for growth may be released.
Mobileye's business has achieved rapid development. Even in 2020, when the epidemic is severe and the auto industry has been hit hard, Mobileye chip shipments have increased by 10% year-on-year. And Intel subsidiary Mobileye also announced that it plans to promote self-driving cars to commercial use by 2025.
In comparison, Google’s self-driving company Waymo is making slow progress in the road test link, accumulating only millions of kilometers of road test information each year.
At present, technology companies such as Tesla, Sony, Qualcomm, and Nvidia are all involved, and it takes time for Intel to take a long lead. And 2021 may be one of the important time nodes. If the new CEO wants to help Intel regain the recognition of the capital market, it is particularly critical to boost the PC business and data center business.
Source of the article: US Stock Research Institute, please indicate the copyright for reprinting.