Intel & IBM Q4 2020 – Turnaround sagas.

Intel Q4 2020 – The hard road.

• Intel reported good results and guidance but the new CEO’s commitment to manufacturing sent skittish investors running for the hills.
• Q4 2020 revenues / EPS were $20.0bn / $1.42 nicely ahead of consensus of $17.5bn / $1.04 as the new lockdowns spurred further demand for homeworking & home-schooling tools of which Intel is the leading component supplier.
• This is expected to continue in Q1 2021 as the COVID case count is showing little sign of abating and I think will continue until the weather in the northern hemisphere begins to warm up.
• Hence guidance was also strong with Q1 2021 mid-point revenue / EPS of $18.6bn / $1.03 compared to consensus at $16.7bn / $0.99.
• The shares initially rallied but then settled back after the new CEO stated that Intel would continue to manufacture the majority of its product production going forward.
• This essentially means that Intel has decided to fix its production rather than sell it off which I think is exactly the right decision, but the way forward is going to be very tough.
• Intel’s DNA is silicon chip manufacturing and to depart from this would leave Intel as an also-ran in the industry it pioneered consigning it to a slow and painful trajectory into oblivion.
• Returning to being the industry leader is going to be very hard meaning that I may get another chance to consider buying Intel at $44.

IBM Q4 2020 – Doing a Lucent?

• IBM is one of the very few technology companies that are failing to make the most of the pandemic very much like Lucent failed to benefit from the internet boom in 1999 and 2000 despite being a major supplier.
• IBM reported weak Q4 2020 results with revenues / EPS of $20.4bn / $1.14 compared to consensus at $20.7bn / $1.00 as despite calling itself a cloud company, it failed to benefit like everyone else who is exposed to the cloud.
• Cloud and cognitive software saw a revenue decline of 4.5% YoY although total cloud revenues were up 10% YoY across the company.
• When one compares this to the likes of AWS, Microsoft Azure, AliCloud and so on, this is very poor performance.
• The big question here is whether this performance is a result of bad execution or if it is simply suffering as a result of being in the middle of a transition from an on-premise software provider to a cloud company.
• IBM has made a similar transition successfully before when it moved from hardware to software in the 1990s and so the success of this migration lies in the quality of its new management team.
• The shares are in a long-term downtrend from their high of $213 last achieved in 2013 and it will take a herculean effort to turn this around.
• The shares do offer a 5% dividend yield which should offer some downside protection, but I would look for that to rise to 7% (like AT&T & China Mobile) before I get interested.
• I already own AT&T and China Mobile on this basis and am adding IBM to my watch list but there could easily be further downside ahead.
• I remain undecided whether this is a phoenix still in the ashes or just another Lucent.