Execution is key for Intel (INTC - Free Report) as its 3-year roadmap highlights its process lag, even as data from IDC and IC Insights shows that it is holding its own while it changes direction and focus. These and other stories are covered below:
3-Year Roadmap Disappoints
Early this month Intel hosted its analyst day, but the disappointing three-year outlook (high-single digit data-centric business growth and flat to slightly down PC business, EPS growth in-line with revenue) sent shares sliding. The DCG business within the data-centric group (data center, IoT, Mobileye, memory, programmable solutions) will grow double-digits.
The still-dominant chipmaker expects to have just 28% market share ($85 billion in sales) by 2023, albeit of a broader addressable market of about $300 billion. The transition away from a PC-centric business model is the main reason for Intel becoming a smaller player in a larger market.
The company will finally ship its 10nm Ice Lake products in June, “in time for the holiday season” this year and its first 7nm product (based on the new EUV technology) in 2021. There will be two optimization upgrades to 10nm, i.e.10nm+ and 10nm++ between now and the time 7nm launches. Moreover, this process of intra-node optimization will continue with 7nm as well.
The first 7nm product promising a 20% improvement in performance per watt will be a server GPU followed by a server CPU. PC upgrades will come last, in line with Intel’s plans of increasing focus on its data centric businesses.
Intel’s struggles to get its 10nm products out the door meant increasing pressure on its 14nm capacity. So it prioritized more profitable products, which led to product shortage in the low end. Intel says supply-demand balance will be partially achieved in the third quarter and completely in the fourth.
Mobileye Mapping Road Data in Britain
Intel’s Mobileye business is going great guns. This provider of advanced driver-assistance systems (ADAS) is embarking on a venture to create a new roadside infrastructure dataset of Britain to feed a location information service. The goal is to improve the accuracy of the data while making it more customizable so it can be used by a broad range of industries including energy, utilities, construction, and emerging tech markets like connected autonomous vehicles (CAV) and telecoms rolling out 5G.
For this purpose, it has done a trial with Ordnance Survey (OS), Great Britain’s national mapping agency, which is cross-referencing the detailed data including road markings, network boxes, traffic lights, road signs, lamp and telegraph posts, bollards, manhole covers and drainage grates with its existing datasets on a continued basis as the tracking vehicles capture information of the roads they travel. The trials were in London, Manchester and the Northeast.
Vans and cars will have the company’s automotive camera-based mapping system Mobileye® 8 Connect™ installed that will allow them to detect, process and transmit the information to the cloud for aggregation, before it is sent to OS.
Northumbrian Water Group is installing the Mobileye system on its vehicles to do the job in the northeast of England.
Mobileye is a promising business for Intel, growing revenue 38% in the first quarter.
Intel Security Flaw
Intel calls the “medium” severity vulnerability Microarchitectural Data Sampling (MDS), but it’s also referred to as a ZombieLoad bug.
"With a large enough data sample, time or control of the target system's behavior," the flaw could enable attackers to see data thought to be off-limits, Bryan Jorgensen, Intel's senior director of product assurance and security, said in a video statement.
So hackers could access websites you visit in real time and steal passwords or access tokens. It is a serious vulnerability, but relatively difficult to exploit and Intel said that there isn’t any evidence that anyone has done so.
t also said that along with OS vendors, equipment manufacturers and other partners, it had already developed a patch for its older products and removed the problem altogether from its new products.
It also said that Bitdefender, other security firms and researchers pointed out the problem after it had discovered it.
IDC Projects 2019 Semiconductor Sales
International Data Corporation (IDC) forecasts that worldwide semiconductor revenue will decline to $440 billion in 2019, down 7.2% from $474 billion in 2018. According to its semiconductor applications forecaster (SAF), semiconductor revenues will recover in 2020, posting a compound annual growth rate (CAGR) of 2.0% from 2018-2023 to touch $524 billion in 2023.
1. DRAM and NAND will both decline in 2019 and 2020.
2. Non memory semiconductors will grow 1% to $319 billion in 2019.
3. Semiconductors for the computing industry will decline 5.1% this year but grow at a CAGR of 1.3% between 2018 and 2023. X86 servers (meaning Intel and AMD) and SSDs will be bright spots, growing at 11.3% and 9.8% CAGR in the forecast period.
4. Mobile wireless communications semiconductors will grow 1.8% this year and at a CAGR of 4.8% in the forecast period.
5. Consumer semiconductors will grow at a 6.4% CAGR during this time, driven by consumer IoT and home automation.
The drivers for 2020 and beyond include the cloudification of current workflows and entertainment and so on, 5G mobile devices, WiFi 6 adoption, Smart NICs, automotive sensors, powertrain technologies, AI training accelerators and edge inference SoCs.
The research firm blames the reasons for current softness primarily on weaker smartphone sales and also the softer demand coming out of China. This has been compounded by excess inventories in auto (where there is slowdown in vehicle sales) and cloud infrastructure. Mario Morales, program VP of semiconductors at IDC says, "We expect the market to bottom by end of the third quarter this year as we work through inventories and demand begins to gradually return.”
From a components perspective, the market was being propped up by extremely strong memory demand, both DRAM and NAND, which also resulted in rising average selling prices (ASPs). The oversupply situation this brought will continue to impact sales this year and into 2020.
Revenue concentration in the industry is high and will remain so (the top 10 companies make up 62% of the semiconductor market compared to 60% in 2017 and 56% in 2016). Market consolidation is expected to accelerate as soon as there is more clarity on the trade war.
Intel was the only one among the top 10 semiconductor companies that didn’t see a sales decline in Q1 (IC Insights and company reports, compiled by EPSNews). It was also the leading chipmaker.
So Intel’s projections with respect to the market aren’t too bad. The problem is that unlike in the past, Intel’s recent history is full of missed deadlines and unfulfilled promises. Now the trade war is complicating things further. Execution is therefore key for the company and will determine whether the stock is able to recover from its current blues.
That’s why Intel has a Zacks Rank #3 (Hold), similar to peers NVIDIA (NVDA - Free Report) , STMicroelectronics (STM - Free Report) and Texas Instruments (TXN - Free Report) . You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1% and +98.3%.
This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
See their latest picks free >>