Intel (INTC): Q425 Recap - Supply Constraints and Weak Guidance
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Bernstein notes that Intel delivered solid Q4 results, with revenue reaching $13.7 billion, beating the $13.4 billion consensus, and EPS of $0.15 surpassing the $0.09 estimate. The Data Center and AI Group drove the outperformance, generating $4.74 billion in revenue, beating estimates by over $400 million. However, the Client Computing Group lagged at $8.19 billion due to capacity being prioritized for servers. Non-GAAP gross margin exceeded expectations at 37.9%.
Despite the Q4 strength, Q1 guidance disappointed significantly. Management projected revenue of $12.2 billion, EPS of $0.00, and a gross margin of 34.5%, all well below market estimates. Supply constraints are expected to persist throughout Q1, with servers continuing to take priority over PCs, leading to a sharper sequential decline in client computing revenue.
Longer-term challenges remain. The 18A yield improvement has not accelerated, and standard yields are not expected until late 2026. The 14A customer decision timeline extends to the second half of 2026 or first half of 2027, with risk production in 2028 and mass production potentially in 2029. Furthermore, non-controlling interests from the SCIP transaction appear underestimated by the market, creating a significant earnings headwind.
With shares up 47% over three weeks despite an imperfect fundamental picture, Bernstein maintains its Market-Perform rating and a $36 target price, based on 3.5 times EV/sales on calendar year 2027 estimates.