After yet another set of weak earnings results from Intel, which sent the shares down by 9.4% today, investment bank JPMorgan warns that the firm might face headwinds in the second half due to order pullback from tariffs. Intel's earnings report saw the firm beat consensus analyst estimates of $11.9 billion through its $12.9 billion in revenue but miss EPS estimates of $0.01 through a $0.01 loss. Intel's shares didn't fare well as the firm announced that it would layoff 30% of its workforce for further cost reduction and streamlining.
JPMorgan Isn't Convinced About The Speed Of Intel's Turnaround
Heading into the earnings release, Wall Street was on the lookout for Intel's current leading-edge 18A chip manufacturing process and the status of the 14A technology. The firm disappointed on both these fronts as its CEO, Lip-Bu Tan, announced during the earnings conference call that not only would Intel decide to use the 18A technology for internal use only, but it might also scrap the 14A technology if it can win customer orders.
The announcements effectively meant that the future of Intel's Foundry business was in question, with investors also wondering whether the 18A process would meaningfully contribute to its order flow. While CFO David Zinsner tried to take a more diplomatic approach and shared that Intel expected 18A production to occur in 'waves' with the technology being the one that Intel uses "for a very long time," the damage was done as investors wondered whether the firm might have to scrap its foundry business altogether.
After the earnings report, investment bank JPMorgan weighed in on Intel's results. As of late afternoon today, the shares have lost 9% and are trading around the $20.5 mark. JPMorgan slightly increased its Intel share price target to $21 from an earlier $20 but stuck with an Underweight rating on the shares.
A key point during Intel's latest earnings report was that the firm's revenue beat might have been due to order front-running due to tariffs. In its note, JPMorgan warned that the pull-in of orders due to the tariff demand might create headaches for the firm during the year's second half. Order pull-in means that since customers have already bought their chips from Intel, the demand for its products could fall during the second half of the year.
The investment bank also commented on plans to go fabless and its turnaround. One of the most shocking developments following Intel's earnings was the potential plan to exit chip manufacturing and adopt a fabless model. JPMorgan believes that Intel appears to be unable to rely on a successful turnaround as it considers exiting the foundry business. The stock's selloff is motivated by these concerns and worries that the firm might have to write off hundreds of billions in development expenses.
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