On January 26th 2023, Intel had their 4th Quarter Earnings Call. On the call, Intel discussed their performance over the 4th quarter and full year of 2022. The call was not received well.
Before the call, the stock ended the day at $30.09. After hearing the company's disappointing financial results, the stock opened the next day 10% lower at $27.07.
In this post, I will introduce you to the basic materials associated with the Earnings Call and over the next few weeks, we will closely examine some of these documents.
Below is a link to a replay of the call:
Here are the presentation slides that go with the call:
Below is a transcript of the call:
I usually listen to the call so I can hear the tone of the speakers as they discuss the business, and then I read the transcript so I can take my time processing the information mentioned on the call.
Disclaimer: The videos below do not belong to us. The creators are mentioned in each video.
HIGHLIGHTS OF 4TH QUARTER (Q4)
Although Intel's revenues were not far from expectations, their gross margin and earnings per share (EPS) fell off a cliff.
Gross Margin is the amount of income remaining after a company pays for the items that go directly into making the products they sell.
EPS or Earnings Per Share is a company's net profit divided by the number of their available shares.
4TH QUARTER PERFORMANCE OF INTEL'S SIX BUSINESS DIVISIONS
See previous post for an explanation of each division.
Summary of CCG Division's 4th Quarter Financials
Operating Income is the income remaining after a company pays the expenses tied to operating their business. Operating Expenses include items such as rent, salaries, marketing, research & development. Operating income does not include taxes or interest paid on loans.
Example of Annual Operating Income:
Operating Margin is the percentage of a company's revenue remaining after paying its operating expenses. The operating margin in the above diagram is 3.7%
Calculation: Operating Income divided by Net Revenue = Operating Margin
Summary of DCAI Division's 4th Quarter Financials
TAM or Total Addressable Market is the monetary value of the total market available for a company's product. The larger the TAM, the higher the revenue potential for a company's products.
Summary of NEX Division's 4th Quarter Financials
Summary of AXG, Mobileye & IFS Divisions' 4th Quarter Financials
INTEL'S Q1 2023 FINANCIAL FORECAST
Financial Forecast/Outlook: A company's prediction about their financial future.
On these earning calls, the Management Team provides a summary of what happened in the previous quarter, and they also make predictions about the upcoming quarter and year. Intel's CEO, Pat Gelsinger, was uncomfortable providing a financial forecast past the 1st quarter of 2023 because of the uncertainty in the microchip industry and the economy.
Please do not take financial forecasts seriously because they are only guesses made by people. No matter how detailed or convincing their forecasts are, they are still just guesses. Only God knows the future.
As the Bible says,
“Come now, you who say, “Today or tomorrow we will go into such and such a town and spend a year there and trade and make a profit”— yet you do not know what tomorrow will bring. What is your life? For you are a mist that appears for a little time and then vanishes.
Instead you ought to say, “If the Lord wills, we will live and do this or that.” As it is, you boast in your arrogance. All such boasting is evil.”
James 4:13-16 ESV
FINANCIAL FILINGS
Every year, companies on the stock market have to file a 10-K with the Securities and Exchange Commission. The 10-K contains information on a company's 12 month performance.
Intel's 10-K:
The 10-K can be found on Intel's Investor Relations page or on the Securities and Exchange Commission website.
I suggest looking through their Table of Contents to get an idea of the information contained in a 10-K.
These financial reports can be hundreds of pages long but do not fret. We don't need to read the entire report in one day. We can take a couple of days or weeks to go through it. We will review the latest 10-K in depth over the next few weeks.
Here is a brief overview of some of the important sections.
CONSOLIDATED FINANCIAL STATEMENTS (Page 76)
Income Statement: Shows a company's revenue, expenses and profit.
Balance Sheet: Shows a company's assets and liabilities.
Cash Flow Statement: Shows the 'ACTUAL' cash spent and received by a company. Companies on the stock market use an accounting system called "Accrual Accounting". Under this system, a company can record revenues without actually receiving cash and record expenses without actually paying cash. As long as certain criterias are met, companies can include these transactions on their Income Statement. The Cash Flow Statement below shows the actual cash received and spent by the company.
MANAGEMENT DISCUSSION & ANALYSIS (Page 19)
This section of the report provides an explanation by the Management Team of the company's current performance versus the previous year.
LONG TERM DEBT SCHEDULE (PAGE 101)
This section provides information on a company's debt, the interest rate they pay, and when their loans need to be paid in full.
The numbers below are millions and billions. The first loan under the Dec 31 2022 column is 1,250 billion dollars and the loan underneath it is $600 million dollars.
Again, don't worry. We will review these sections in depth over the next few weeks.
INVESTOR PERSPECTIVES
After Intel released their financial report, stock analysts went on tv to provide their perspective of the company.
The first analyst, Stacy Rasgon, has a negative/bearish view of Intel and the second analyst, Patrick Moorhead, has a positive/bullish view of the company. It is always good to hear different perspectives on a company because people with different views can highlight things we ignored or missed.
BEARISH VIEW
Sounds like Intel is about to go out of business.
BULLISH VIEW
Sounds like Intel has hope.
How do you feel about what these analysts are saying?
Next week we will focus on Intel's Income Statement.
See you soon.
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