Microchip and semiconductor company Intel (NASDAQ:INTC) is back in the dog house with analysts and investors after issuing disappointing earnings and delaying construction on a major new plant.
Year-to-date, INTC stock is down nearly 10%. That compares with a 20% gain in the VanEck Semiconductor ETF (NASDAQ:SMH) since the start of the year. While most chipmaker and semiconductor companies’ stocks are soaring, Intel is lagging again. Unfortunately, the company is facing short-term problems and longer-term difficulties that will likely weigh on its share price for the foreseeable future, making INTC stock a bad investment.
Short-Term Troubles
Intel’s earnings print for the fourth and final quarter of 2023 was actually very strong. The company reported earnings per share (EPS) of 54 cents versus 45 cents that had been forecast. Revenue came in at $15.40 billion compared to the expected $15.15 billion. Sales grew 10% from a year earlier, breaking a streak of seven quarters of declining revenue. In short, the company knocked it out of the park. Unfortunately, though, Intel offered forward guidance that fell short of Wall Street’s expectations.
Intel placed a large part of the blame for its poor outlook on its core business of supplying microchips for personal computers and servers, each of which the company expects to be at the low end of its range in the current first quarter of 2024. Nearly a quarter of Intel’s $54 billion in annual revenues comes from its sales to PC companies and data centers. The ongoing slump and slow recovery in demand from these sales units is a short-term problem that continues to pressure INTC stock.
Long-Term Issues
Bigger picture: Intel is struggling to reinvent its entire business fully. The company is spending billions of dollars to become a microchip foundry and manufacture chips and semiconductors for other companies such as Nvidia (NASDAQ:NVDA) and Apple (NASDAQ:AAPL). This expensive and complicated process is causing strong headwinds for Intel. This was evident in the recent news that the company has delayed construction of a new $20 billion manufacturing plant in Ohio due to what management called “weak market conditions.”
So far, Intel’s Foundry Service, its unit making microchips for other companies, is a relatively small part of its overall business, adding less than $300 million to its revenue in Q4 2023. To help fund the transition into a chip foundry, Intel has been cutting costs through headcount reductions and offloading smaller parts of its business. The company spun off its self-driving car subsidiary Mobileye (NASDAQ:MBLY) into an independent business and plans to do the same with its programmable chip unit this year.
However, analysts continue to question if this multi-year transformation by Intel is necessary, noting that the company is losing market share in its PC chip sales to rivals such as Advanced Micro Devices (NASDAQ:AMD) while gaining little ground on its main competitor in the foundry business, Taiwan Semiconductor Manufacturing Co. (NYSE:TSM).
Avoid INTC Stock
In time, Intel may emerge stronger than in the past and reassert itself as a dominant player in the global market for microchips and semiconductors. But that day looks to be a long way off. In both the near and long term, Intel continues to face challenges likely to hold the company and its stock back, hurting shareholders in the process. As such, investors would be wise to avoid Intel for now. There are many other chip stocks that are surging ahead right now. INTC stock is not a buy.
On the date of publication, Joel Baglole held long positions in NVDA and AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
