INTC Intel Corporation

By Asa Fitch 

Intel Corp. is poised to post full-year results that outline the breadth of challenges awaiting the incoming chief executive as the chip maker looks to fend off competitive pressures and rebuild its technological leadership.

The earnings Thursday afternoon mark the end of a challenging yet lucrative year for the semiconductor giant that saw it surpassed in market valuation by rival Nvidia Corp., dropped by Apple Inc. as a supplier for Mac chips, suffer market-share losses and face activist investor Third Point LLC pushing for strategic changes.

Wall Street expects the semiconductor giant to report record full-year revenue of $75.4 billion, up from $72 billion the year prior. But analysts surveyed by FactSet foresee lower sales this year, in part reflecting a pair of divestitures and growing competitive pressure. And while Intel has benefited from a boom in demand for PCs in the work-from-home economy, much of the added buying has focused on lower-cost laptops that aren't as profitable. Net income for 2020 is expected to fall to $19.3 billion, from $21.1 billion the year prior.

Intel's longer-term strategy around the outsourcing of chip production is also in flux ahead of the arrival of Pat Gelsinger as CEO. Bob Swan, the company's departing chief executive, said last year that a decision was forthcoming by early this year on whether to have the company's advanced chips made by a third party after Intel fell behind Asian rivals in the development of the next generation of superfast semiconductors.

The company is considering outsourcing production of some of its most prized chips to those Asian rivals, and particularly to Taiwan Semiconductor Manufacturing Co., the largest and most advanced contract chip maker in the world, according to people familiar with the matter.

Intel already has decided to send out production of coming graphics-processing chips to TSMC, and the companies have been in talks about deepening their relationship further. Mr. Swan visited TSMC to discuss potential options in December, according to a person familiar with the trip.

Intel declined to comment.

TSMC last year announced plans to build a chip factory in Arizona, its second in the U.S. And the company last week said it planned record capital expenditures of as much as $28 billion this year, a huge increase from last year and an indication, in some analysts' eyes, that new business from Intel is on the way.

Given the importance of that decision to Intel's long-term future, a final verdict on outsourcing plans could be deferred until Mr. Gelsinger takes over in mid-February, analysts say. The selection of Mr. Gelsinger, the chief executive of VMware Inc., who spent three decades at Intel earlier in his career, was widely hailed. Intel's stock is up 10% since his naming. But analysts expect the turnaround in an industry where product-development cycles are measured in years, not months, to take time.

"It's a good thing to bring in someone new, and particularly someone who has worked at Intel and has a tech background, but whatever path they follow, it will take time to implement," Wedbush Securities analyst Matthew Bryson said.

Third Point, the activist hedge fund led by Daniel Loeb, took a position of about $1 billion in Intel's shares and advocated in a December letter for the company to consider an even more foundational change: splitting up its chip-design and manufacturing operations. Such a move would end Intel's decadeslong run as the leading U.S. integrated chip manufacturer. On Twitter, Mr. Loeb praised Mr. Swan for stepping aside for Mr. Gelsinger.

Intel is facing other pressures, including from competitors such as Nvidia and Advanced Micro Devices Inc. Amid Intel's manufacturing setbacks, AMD has gained market share quickly in central processors for PCs and servers.

When Intel announced Mr. Gelsinger's appointment last week, the company pointed to strong progress on its next-generation chips, which it previously disclosed were running a year behind their initial schedule. The company also said it expected fourth-quarter results to come in above guidance in October of about $17.4 billion of revenue and $1.02 in earnings per share.

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Write to Asa Fitch at asa.fitch@wsj.com

(END) Dow Jones Newswires

January 21, 2021 08:14 ET (13:14 GMT)

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