Intel (ticker: INTC) warned today that its Q1 revenue would miss its prior guidance. Q1 revenue is now expected to be between $8.7 billion and $9.1 billion (mid-point $8.9 billion), versus Intel's prior guidance of between $9.1 billion and $9.7 billion (mid-point $9.4 billion). Mid-point to mid-point, that's a $500 million revenue miss, or a 5.3% miss from the mid-point of Intel's prior guidance for Q1 revenue.
Intel's profitability is highly leveraged to its revenue, because a large proportion of Intel's costs are fixed, so changes in revenue immediately impact gross margins and then EPS. Intel did not provide a new earnings estimate, but did say:
The company expects the first-quarter gross margin percentage to be adversely impacted by the change in revenue. Expenses (R&D plus MG&A) are expected to be lower than previously forecast due to lower revenue- and profit-related spending.
Critically, Intel acknowleged for the first time that it's losing processor market share, though it didn't explicitly mention AMD. From the press release (my emphasis):
Intel Corporation today announced that first-quarter revenue is expected to be between $8.7 billion and $9.1 billion, as compared to the previous expectation of between $9.1 billion and $9.7 billion, primarily due to weaker than expected demand and a slight market segment share loss.
Intel's market share loss shouldn't come as a surprise. When it announced Q4 results, Intel competitor AMD claimed that it was taking significant market share from Intel. That information, and the inconsistency with Intel's claims that it was maintaining market share, was summarised by Seeking Alpha contributor The Stalwart on January 24th:
Last week we noted that Intel’s CFO Andy Bryant was quoted as saying they only lost 1% of market share to AMD in this quarter.
Well, in reading through the AMD conference call [transcript], we noticed that their management saw things differently:
Q - Michael Masdea
Yes, thanks a lot. I’ve just done the math; I’m trying to get a handle on how much market share you put in the quarter. Any estimates from your end? It looks like it’s a lot more than your competitor might have thought?
A - Hector Ruiz
Well, we have the numbers. A year ago, we had 9.6%; a quarter ago, we had 11.9%, and it looks like we had 15.3%.
If those numbers are true, then they’re huge q/q gains, clearly more than Intel is letting on.
A quick self-promotional aside: The Intel pre-announcement emphasises the importance of listening to companies' quarterly calls, or reading their conference call transcripts, a fact well-know to most institutional investors. In his latest book Real Money, for example, Jim Cramer writes:
.....The calls can be up to an hour and a half in length, but they provide the best information possible. Listen to them before you buy, although I have almost never heard of an individual investor who listened to two or three conference calls before he bought. I would never own a stock unless I had listened first. This information is too vital.
Seeking Alpha is publishing about 400 free conference call transcripts this earnings season, and plans to increase the number in future. You can view latest transcripts here and view a list by company here.
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