Amazon, Apple & Intel – Good, average & bad

Amazon Q2 2022 – Good.

• Amazon reported good results and guidance as AWS and its on-site advertising business supported softness in its biggest business and are expected to enhance e-commerce to allow growth to go back to 10% YoY from Q3 2022.
• Q2 2022 revenues / EPS were $121.2bn / LOSS$0.20 compared to forecasts $119.2bn / $0.12.
• The losses include a $3.9bn non-cash write-down of Rivian without which EPS would have been around $0.18 meaning that overall, these were good numbers.
• Guidance was a bit soft with revenues / EBIT expected of $125bn – $130bn / $0.0bn – $3.5bn somewhat behind forecasts of $126.6bn / $4.9bn.
• AWS grew by 33% YoY and advertising by 18% YoY which really is the backbone of these better-than-expected results.
• There is every indication that cloud growth will be inflation proof meaning that AWS will remain a key building block of how Amazon will return to 10% YoY growth in this climate.
• This is better than average performance, but the valuation of the shares continues to reflect this.
• Amazon’s valuation has come down a long way but remains far above what I would be prepared to pay for it especially when the Chinese version trades at a tiny fraction of the multiple and has good prospects for recovery.

Apple FQ3 2022 – Average.

• Apple managed to beat expectations as the drag on its revenues from supply shortages was less than forecast which looks to have saved the company from an unpleasant miss.
• FQ3 2022 revenues / EPS were $83.0bn / $1.20 compared to consensus of $83.0bn / $1.15.
• If the shortages had been worse, Apple would have missed by up to 5% which implies that underlying demand has softened a little more than expected.
• This comes as a surprise as my expectation is that aspirational products like iPhone will be relatively recession and inflation proof as most people who buy its products will not be greatly impacted by a bad economy.
• This period of difficulty plays directly to Tim Cook’s strengths as a master of logistics and operations and so I think that Apple will continue to weather this period relatively well.
• Services was a bright spot growing 12% YoY to $19.6bn and I expect that this will continue to be a steady grower supporting the other business lines should the economy worsen from here.
• Apple, like everyone else, is battening down the hatches for a difficult period and has already slowed hiring and is keeping a closer eye on its spending going forward.
• This means that Apple is likely to continue to meet the expectations of the market leaving a stock which is not cheap but relatively secure in terms of capital protection.
• I remain pretty indifferent to Apple.

Intel Q2 2022 – Bad.

• Intel reported bad results and blamed the macro situation but when one looks at what Qualcomm, TSMC, Samsung and other semiconductor companies have been able to do, one starts to think that this is more about execution than the economy.
• Q2 2022 revenue / EPS were $15.3bn / $0.29 well adrift of consensus of $17.9bn / $0.69 and the bad news did not stop there.
• Guidance for Q3 2022 has been cut to $15bn – $16bn compared to consensus of $18.7bn and EPS reduced to $0.35 compared to consensus of $0.66.
• This has obviously hit the full-year guidance where revenues will now be $65bn – $68bn compared to consensus of $74.4bn.
• Intel saw sudden weakness from its customers during the quarter which looks to me like a widening of the trend that I first saw coming from Japan.
• This is customers deciding that they already have enough inventories to be able to weather supply chain and Covid-related shocks and they slow ordering to be in line with demand.
• Demand itself has also softened which is why Intel saw this sudden fall in orders for its products.
• This means that instead of 2023 EPS being in the region of $3.75 which would give a PER of 9.6x for Intel, EPS is likely now to be in the region of $2.00 – $2.25.
• This again brings down the “shut your eyes and buy it” moment from $36 per share to $20.
• Intel is no longer a value stock as its earnings have evaporated and one now has to look through to the recovery.
• This is far from certain as I still have concerns with regards to the longevity of the x86 processor design and Intel’s financial strength is weakening fast.
• Qualcomm, MediaTek, and TSMC remain far better places to be in the semiconductor sector at the moment and the fence remains an extremely comfortable place to sit when it comes to Intel.