Intel (NASDAQ:INTC)
When it comes to big-cap technology companies, Intel (NASDAQ:INTC) has been one of the most disappointing in recent quarters. The chip titan has lost ground to rivals and faltered due to widespread anxiety about the economy. The dividend was cut a few months ago due to declining sales and a capital loss last year, but there is optimism that the worst may be behind.
You missed a lot if you weren’t paying attention to Intel in 2022. In the end, the year’s first quarter had the highest revenue levels, despite often being the slowest. The firm lost about $4 billion in revenue over only three quarters. Management has already issued a terrible forecast for Q1 2023, suggesting a further nearly $3 billion sequential loss. Below is a chart comparing last year’s actual Intel revenue (green) to current analyst projections (blue).
Even with some cyclicality in the semiconductor industry, we shouldn’t expect a “V”-shaped recovery here. Nvidia in artificial intelligence and Advanced Micro Devices in the data center are two areas where Intel is attempting to make up ground. Intel’s negative free cash flow resulted from the company’s ambitious capital investment strategy to introduce many new products over the next few years.
On Thursday, April 27th, Intel will reveal its Q1 financial results. Financial experts predict a 38% drop in sales. However, as the preceding graph shows, this is often regarded as the cycle’s highest percentage decline for the top line. It is also anticipated to be the point at which sales bottom out. The projected loss in adjusted profits per share is a change of more than a dollar from last year. The market expects Intel to return to adjusted profits in the second quarter of this year. Still, the firm has recently issued several disappointing outlook updates, so we’ll have to wait and see whether that prediction comes true.
The corporation was forecast to burn through additional cash in the first half of this year after finishing 2022 with net debt of roughly $14 billion (excluding long-term investments). When management took out new loans early this year, dividend security was assured. However, the board ultimately concluded that preserving capital was the appropriate action. The compensation was cut by approximately two-thirds. In last year’s Investor Meeting, management shared its vision to return to substantial free cash flow generation in 2025 and beyond. If cash flow improves over the next year or two, investors hope the dividend may be increased somewhat in 2024.
Short interest has been an intriguing topic as of late. Less than 2% of Intel’s outstanding shares are now short. Therefore the company is not severely shorted relative to its peers. In contrast, the number of shares available for short sale hit an all-time high, surpassing 80 million. That’s a rise of almost 43 percent from the end of August 2022, as the graph below indicates. Although a short squeeze in Intel is unlikely, it is an intriguing issue to watch since it may provide insight into how investors currently feel about the company.
Intel’s stock price rose more than 28 percent from its lows last month. Investors are beginning to see the light, but the business still has to prove that a revenue bottom has been reached. With an average price target below $29, analysts expect the stock to drop by approximately 12% from where it closed on Friday. This last push higher has enabled the 50-day moving average to resume its upward trend, so if shares do see a little pullback, that technical line might be one of support.
Intel hopes this month will be its savior after several disappointing quarters. Investors may be persuaded to get back on board if the firm can demonstrate that it has reached a sales bottom and that cash flow will recover quite soon. Although the drastic dividend reduction was disappointing, it was likely the best choice financially. It could take the corporation a few years, but that’s preferable to never recovering to the revenue levels we saw in 2022.
Featured Image: Unsplash
