Why Intel's Q4 Earnings Report Was Much Better Than It Looked. Is The Turnaround Story Intact?

Core Viewpoint - Intel is undergoing a significant turnaround effort to regain its technology leadership in the semiconductor industry, but current financial performance shows challenges, including a substantial stock decline and profitability issues [1][2]. Financial Performance - In Q4, Intel reported revenue of $14.26 billion, exceeding analyst estimates of $13.83 billion, while adjusted earnings per share (EPS) were $0.13, slightly above expectations [3]. - Despite the revenue beat, Intel's profitability was impacted by lower margins, particularly in the data center segment, which reported a 6.9% operating margin [4]. - Management anticipates a sequential revenue decline to $12.2 billion in Q1, with adjusted EPS expected to be breakeven due to seasonal factors and pull-forward sales ahead of potential tariffs [4]. One-Time Charges - Intel faced significant one-time charges, including a $922 million inventory reserve for its Gaudi 3 AI accelerator line, which has been written off [6]. - Additionally, a $755 million charge related to the Ireland Intel 3 fab was recorded, while a $560 million benefit was received from a successful legal challenge [12]. - After accounting for these charges, Intel's adjusted EPS for Q4 would have been $0.29, more than double the reported figure of $0.13 [13]. Product Development and Market Position - The upcoming Falcon Shores AI chip will only serve as an internal test chip, with plans to accelerate development of the Jaguar Shores AI chip, expected in 2026 [7][8]. - Intel's data center CPU operating margins could have been significantly higher, increasing from 6.9% to 24.9% when adjusting for the one-time charges [9]. - The introduction of Intel's 18A node in 2025 is anticipated to surpass TSMC's process technology, with positive feedback from interim co-CEOs regarding its competitive potential [15][16]. Leadership and Strategic Direction - Following the retirement of former CEO Pat Gelsinger, Intel is currently without a permanent CEO, creating uncertainty in its strategic direction [14]. - Despite challenges in the AI accelerator business, there are signs of improvement in current product sales, particularly in the PC segment and data center operations [14].