Intel's turnaround is working, but more time is needed to 'flex its spending power'
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Intel (NASDAQ:INTC) reported fourth-quarter earnings that were better than expected, but the company's guidance for the first quarter shows that more time is needed for the chip giant to catch up to its peers and regain investors' trust.
For the quarter ending December 25, Intel (INTC) reported a profit of $1.09 a share, excluding one-time items, on revenue of $19.53 billion, compared to earnings of $1.48 a share, on $18.9 billion in revenue in the same period a year ago. Wall Street analysts had forecast Intel (INTC) to earn $0.79 a share on revenue of $18.36 billion.
For the first quarter of this year, Intel (INTC) is forecasting earnings of $0.80 a share, or a 40% decline from a year ago, and revenue of $18.3 billion, which would be off by 1% on a year-over-year basis. Still, Intel's (INTC) outlook is better than analysts' estimates for a profit of $0.79 a share, on $17.63 billion in sales.
Deutsche Bank analyst Ross Seymore notes Intel (INTC) is on "the correct strategic path" as it continues to spend to fix its manufacturing, accelerate its product roadmap, regain market share and enter new markets, however, he cautions this will take time.
"...[W]e believe the tangible proof of success on these efforts may take years to demonstrate, as proving the execution engine is on track and regaining investors' trust after years of misexecution will likely take long than a few quarters," Seymore wrote in a note to clients. He has a hold rating and a $55 price target. 
Intel (INTC) shares are down nearly 3% in pre-market trading to $50.20.
J.P. Morgan analyst Harlan Sur, who has an overweight rating and a $64 price target, noted that fourth-quarter results were "solid," led by accelerating demand for its datacenter products. However, the guidance for the following quarter, along with declining gross margins of 52% is likely the company being conservative, a trademark of Chief Executive Pat Gelsinger.
He added that the company is doing well to ship products, including more Alder Lake PC client 12th Gen SKUs and ramping up production of its 1st Gen Arc discrete GPU.
That said, Sur notes that Intel still has more work to do, as it flexes "its spending power and revenue/market share scale now to potentially close the product/manufacturing gap with competitors."
On Wednesday's earnings call, Gelsinger said that Intel (INTC) would be hampered by product constraints going into 2023, but added that inventories are starting to get to where they were prior to the pandemic.