Intel Cutting 5% of Staff, Shares Plunge: What Wall Street's Saying (Update 2)

Updated from 10:37 a.m. to include comments in the fourth paragraph.

NEW YORK (TheStreet) -- Intel (INTC) reported fourth-quarter earnings that missed Wall Street estimates, despite the company's PC business showing a little bit of strength. The real weakness is in the company's Data Center business, and that's not good for Intel's future.

For the fourth quarter, Intel earned 51 cents a share on $13.8 billion in revenue, with gross margins coming in at 62%. Analysts surveyed by Thomson Reuters expected Intel to earn 52 cents a share on $13.71 billion in revenue.

The company noted its PC Client Group generated $8.6 billion in sales during the quarter, up 2% sequentially and flat year over year, as the segment looks to be bottoming out. Intel's Data Center Group generated $3 billion in sales, up 8% year over year and and a 3% sequential gain. Analysts were expecting double-digit growth from this segment, and it became a subject of contention on Intel's earnings call, as shares continued to dip lower.

As a result of the troubles, Intel decided to cut 5% of its headcount, though CFO Stacy Smith refused to give a number on last night's earnings call. Intel spokesperson Chris Kraeuter confirmed the 5% headcount reduction in a phone call.

Intel's architecture operating segments group, which sells mobile chips, generated $1.1 billion in sales.


First-quarter guidance from the world's largest semiconductor maker was a little weaker than anticipated, with the company expecting revenue of $12.8 billion, plus or minus $500 million, with gross margins at 59%. On the conference call, CFO Stacy Smith said there would be headcount reductions as well, but nothing dramatic, as the company continues to right size its cost structure for the coming year.

Intel shares were sharply lower in trading on Friday, off 3.4% to $25.63.

Following the conference call, Intel analysts were concerned about the Data Center Group (DCG), considering the company had talked up low to mid double-digit growth in this segment prior to the results. Here's what a few of them had to say:

BMO Capital Markets analyst Dr. Ambrish Srivastava, (Outperform, $31 PT)

"Intel's results and guidance were not exactly squeaky clean, as weakness in DCG offset what could potentially have been a decent print and guide. Intel's DCG revenues came in below for 4Q, as the government shutdown affected business late in 4Q. The company also, we think wisely, lowered expectations for DCG for 2014 from low- to mid-double-digits growth to low-double-digits growth. Lower bars are better, except of course, when they keep getting lowered repeatedly. Our estimates are unchanged."


Citi analyst Glen Yeung (Buy, $29 PT)

"With much enthusiasm heading into 4Q13 results, Intel's relatively disappointing enterprise server sales will likely result in a near-term retrenchment of the shares. Despite this, we remain positively biased to INTC on the premise that: 1) PC client sales are indeed showing signs of recovery, 2) enterprise server sales will likely show recovery consistent with our view of economic recovery, and 3) new foundry relationships are still on the horizon for Intel. Overall our estimates remain unchanged. Our price target slightly increases (to $29 from $28) on higher market multiples."


Canaccord Genuity analyst Bobby Burleson (Hold, $24 PT)

"We remain HOLD-rated for Intel given valuation is unlikely to expand during slow growth phase, especially with lingering uncertainty for PC demand and the potential mix effects on consumer notebooks from ramping tablets. Our estimates increase slightly on guidance although we were below consensus into the release. Our price target increases
modestly to $24."

Oppenheimer analyst Rick Shafer (Perform, No PT)

"INTC reported 4Q sales/EPS of $13.8B/$0.51, in line with consensus $13.7B/$0.52. Slight upside in PC/tablet was largely offset by Enterprise softness in DCG in 4Q. Guidance for 1Q revenue of $12.8B (-7% Q/Q) is in line with historical seasonality and the Street's $12.8B. Management also guided 2014 revenue flat Y/Y with PC down mid-single digits (%) and DCG up ~10%. With the stock up 12% from early December lows, we believe investors were looking for more. We expect shares to trade lower Friday morning and are sticking to the sidelines until a clearer picture of INTC's wireless traction and longer-term growth outlook emerges."

Credit Suisse analyst John Pitzer (Outperform, $30 PT)

"INTC beat revenue and GM for DecQ/MarQ but missed comparable Street EPS by 1 cent and 3 cents, respectively, due to higher OpEx and TR. Revenue upside would have been more pronounced but for relative weakness in DCG, which offset better-than-expected PCCG growth. Relative to several upgrades, improving PC supply chain data points and a stock that has outperformed the broader market by 2x since the early December, results are not good enough."

--Written by Chris Ciaccia in New York

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