AMD Soars After Profit Beat; Intel Cuts Worker Benefits

Analysts say AMD's market-share gains imperil Intel's dividend

Two people walking into an office with an AMD sign out front

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Advanced Micro Devices Inc. (AMD) shares soared nearly 13% Wednesday after the chipmaker offered an inline first-quarter outlook, reassuring investors spooked last week when rival Intel Corp. (INTC) issued a dismal forecast amid market-share losses and a downturn in spending on computing chips.

Intel shares recovered slightly from Friday's 6% drubbing, gaining nearly 3% as the company announced cuts in employee benefits and managerial pay. Intel CEO Pat Gelsinger will lose the highest proportion of base pay at 25% in his $1.25 million salary, or 0.17% of his nearly $179 million in total 2021 compensation, which consisted mostly of stock and stock option grants. Intel hasn't yet disclosed Gelsinger's pay for 2022.

Key Takeaways

  • AMD shares soared 13% Wednesday after the chipmaker issued an in-line first-quarter forecast.
  • The chip maker's guidance and fourth-quarter results above estimates contrasted with misses by rival Intel last week.
  • Intel shares rebounded Wednesday after the chipmaker said it will cut managerial pay and employee benefits.
  • Analysts have warned Intel's dividend is at risk amid market-share losses and heavy investment spending.

Other top Intel executives will have their base pay cut by 15%, senior managers by 10%, and middle managers by 5%. All workers will lose quarterly profit-sharing bonuses and merit pay increases, and will have their 401(k) matching contributions cut in half, to 2.5%. Gelsinger delivered the bad news to employees in a somber Tuesday night address, and the announcement is "certain to devastate morale" among Intel employees, the Oregonian reported. Intel employs more people in Oregon than in any other U.S. state.

In outlooks following their fourth-quarter earnings reports, both AMD and Intel said the inventory correction weighing on PC sales is likely to persist through the first quarter of 2023, while sales of chips for data centers are also expected to be softer early in the year before recovering. Neither company offered annual guidance, with both citing weak global growth.

That's where the similarities end, however. AMD topped Wall Street's fourth-quarter estimates while Intel missed expectations by a wide margin.

AMD said first-quarter sales would be down 10% year-over-year and projected gross margin of 50% on a non-GAAP basis, down from 52% in last year's first quarter.

Meanwhile, Intel said first-quarter revenue will drop about 40% year-over-year while its non-GAAP gross margin of 39% would be down from 53% a year earlier. Its gross margin would likely decline further to 34% if not for an accounting change. The company is stretching out the estimated useful life of some production equipment from five to eight years, a change that is expected to cut depreciation costs by as much as $4.2 billion in 2023, boosting earnings but not cash flow.

While AMD expects data-center sales to rise this year after growth of 42% in the fourth quarter, Intel saw a 33% drop in data-center and AI revenue for the period, and said sales in the segment would weaken further early this year as customers reduce inventories of previously purchased chips. AMD is capitalizing on the performance and cost advantages of its data-center processors, which are taking market share from Intel.

AMD also said the depressed demand for PC chips is likely to bottom out in the first quarter, while Intel cautioned weakness could persist into the second half of the year.

Analysts applied terms like "atrocious" and "historic collapse" to Intel's results and guidance, and speculated the company may need to cut its dividend amid heavy spending aimed at catching up to rivals while building up Intel's foundry business.

As a result, AMD has once again surpassed Intel in market capitalization, at $136 billion versus $120 billion. Intel was valued at $264 billion less than two years ago, before its stock lost nearly half its value last year. Ten years ago, AMD had a market cap of less than $2 billion versus $104 billion for Intel.

The slowdown in tech spending is also likely to persist for flash-memory suppliers, Western Digital (WDC) indicated late Tuesday in providing guidance below estimates for its March quarter. Shares of the company fell 1.5% Wednesday.

Article Sources
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  2. CNBC. "Intel Execs Make Small Cut to Their Overall Compensation After a Disastrous Quarter."

  3. Intel. "Intel in Oregon."

  4. Investor's Business Daily. "AMD Stock Rises As Data Center Business Drives Fourth-Quarter Beat."

  5. CNBC. "Intel Shares Drop on Weak Quarterly Results and Expectations for Another Quarter of Losses."

  6. AMD. "AMD Reports Fourth Quarter and Full Year 2022 Financial Results."

  7. Intel. "Intel Reports Fourth-Quarter and Full-Year 2022 Financial Results."

  8. The Motley Fool. "How Intel Instantly Slashed Costs By $4.2 Billion."

  9. Intel. "Comments from CEO Pat Gelsinger and CFO Dave Zinsner, Jan. 26, 2023," Page 6.

  10. CNBC. "Why AMD Is Faring Much Better Than Intel in the Same Tough Economy."

  11. Reuters. "AMD Shares Jump as Earnings Defy Collapse Seen at Intel."

  12. Reuters. "Intel's 'Historic Collapse' Erases $8 billion From Market Value."

  13. The Oregonian. "Intel’s 'Atrocious' Financial Results Alarm Wall Street, Analysts Say Dividend at Risk."

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  15. "Market Capitalization of Intel (INTC)."

  16. Barron's. "Western Digital Stock Is Dropping. The Outlook Was Weak."

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