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Speaker 1: Bloomberg Audio Studios.
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Speaker 2: Podcasts. Radio.
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Speaker 3: News.
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Speaker 4: This is a breaking news update from Bloomberg.
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Speaker 5: Instant reaction and analysis from our 3,000 journalists and analysts around the world. Shares of her Intel down more than 20% right now. This after its revenue forecast missed analyst estimates. It was hurt by sputtering demand for PC processors and supply chain problems with its lucrative data center components. I want to bring in Kunjan Sabani, Senior Semiconductor Analyst for Bloomberg Intelligence. Kunjan, this stock was up 150% going into today's print, but still a 20% haircut is a big haircut no matter which way you look at it. What's your take on this print?
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Speaker 3: Yeah, I mean, look, the massive misses on the 4Q guide is just very surprising. We all knew that the PC market is not looking that strong, but the results that came in are, again, surprising. At least from what we have seen so far, it looks to me that, you know, the data center, which was upbeat, is looking strong, but they cannot get enough supply there to sell more into the data center. And the headwinds from the PC are large enough that whatever they are able to get more supply on the data center side and get a bead, it's not large enough to offset. One more key important point here is that gross margin miss. That's very substantial. We finally had Intel getting to sort of the mid 40s after a few quarters of really good work. And so we are back down again with almost 600 plus basis point of a decline quarter over quarter.
00:01:42
Speaker 4: That's substantial.
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Speaker 3: We think that's again coming from Intel trying to get more supply and push more on the data center side.
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Speaker 4: Which is where the future is. But that comes at the cost of.
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Speaker 3: Lower margins, loading up the factories on the new nodes, which are, again, a headwind to the margins. And the PC business, which is a better margin business, not doing so well. So the mix of combinations between data center and PC is not helping Intel.
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Speaker 1: Yeah, Kunjan, you know, what's interesting, too, is, you know, is it a case of that if they could get all the supply they needed in order to meet demand, we would be having a very different conversation today? Or is it more than that because of what we're seeing on the PC side?
00:02:22
Speaker 3: If they were able to get more demand on the data center side, on the revenue line item, we would not see such a big deviation. It would still be able to offset the weak demand in PC. But I think we would still have seen some headwinds on gross margin. Remember, data center products, the more they ship right now, it's a headwind for gross margin because it's a lower gross margin. They are loading it all up on the newer nodes, which are much more expensive until you reach a certain point.
00:02:49
Speaker 4: Where it starts being more profitable.
00:02:51
Speaker 3: So we would have seen less of an impact on the top line, but still an impact on the gross margins.
00:02:59
Speaker 1: You know, it's interesting. We had a conversation earlier with one of our guests here at Schwab Impact in Boston. And this kind of concept of, you know, you kind of have to invest for the future so that if you look at a company like Alphabet, which just got creamed today in today's session, if you think about the market cap drop that it endured, that this whole idea that you're investing in the future of Alphabet. and if you believe in the course and the impact of AI. And I do wonder about Intel. Have they righted the ship, made the changes they need for an Intel of the future, and that investors need to be patient here?
00:03:36
Speaker 3: I think investors do need to be patient, and they have been patient. Look, they are investing here for the future. Investing to bring up capacity in the data center and focusing on the data center is the right choice because that is the better, faster growing end market in the future. And the North Star for Intel, again, remains that foundry business. which they've done a lot of progress on. But you look, you are in an environment where every single one of your peers is beating by billions of dollars. You know, they are guiding up their revenues multiple times in a year just for future years. Folks are giving guidance more than two years out when it comes to your semi peers.
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Speaker 4: So there's also that peer pressure, right?
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Speaker 3: So for investors, when they're looking at other semi companies, which are giving such robust results, both in near-term and outward guidance. It's just difficult to stay patient when you see such hiccups.
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Speaker 2: On the way.
00:04:31
Speaker 1: All right, so top question that you think has to be asked on this call with analysts and investors from the Intel C-suite.
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Speaker 4: I think two questions, right?
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Speaker 3: When do we really expect sort of the gross margin trajectory to really find a floor? We have seen this repeat a couple of times where we see positive progress on gross margin and suddenly we hit a quarter where We sort of take one step forward and two steps back. And I think the second question remains, how is the progress going on the Foundry side? We have seen a lot of announcements, positive announcements around packaging, and their packaging technology.
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Speaker 4: Is really differentiated.
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Speaker 3: We really want to start seeing significant material revenues come out of that business.
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Speaker 1: Is there any other semiconductor name that we should be watching as a result of what we're seeing from Intel? Just real quickly.
00:05:22
Speaker 4: Yeah, next week, AMD.
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Speaker 3: Again, AMD is also exposed to the similar PC head markets, but we don't think they will do much worse because of their exposure and share gains. But that's something we'll be watching carefully.
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Speaker 1: All right. Going to leave it on that note. Kunjan Subani, he is Senior Semiconductor Analyst at Bloomberg Intelligence, joining us, of course, on Intel shares, continuing to trade lower in today's session, down about 18.5%.
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Speaker 5: Hey, Amazon shares are lower in the after hours as well, down about 6.7%. Third quarter AWS net sales, excluding FX, did beat estimates. The company still sees year cash capex at about $ 220 billion. It sees fourth quarter net sales, $ 240 to $ 247 billion. That's in line with estimates at $ 244 billion and a half. Third quarter AWS net sales, excluding FX, was up above estimates at 39%. I want to bring in Anurag Rana, Senior Tech Analyst at Bloomberg Intelligence. He joins us from our Chicago bureau. Anurag, we just spoke to Kunjan about Intel, shares of Intel down, wow, close, you know, 20% at this point. Shares of Amazon are down lower in the after hours right now by 6.7%. Your takeaways from this print?
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Speaker 2: Yeah, when you look at cloud results from both Google and Microsoft, we saw a big beat on the growth rate. I think in the case of Amazon, they just went ahead and met the expectations at 39%. So basically, you know, that is probably what's causing the shares to go down. But I'd also point out to one particular thing that they said. they're expecting AWS sales to be above 40% into 27 and 28. I think that's a very, very strong numbers given where we are in the cycle. So I think in my view, people are maybe disappointed that they didn't beat AWS by a big number. But from our side, I think we really like those 40% numbers.
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Speaker 1: Yeah, it's interesting too. Amazon in total sees revenue growth rates of over 40% in 2027 and 2028. Free cash flow falling to an outflow of $ 42. 4 billion.
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Speaker 2: Wow.
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Speaker 4: Repeat that?
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Speaker 1: And cash flow fell to an outflow of $ 42. 4 billion for 12 months, I guess, trailing. For trailing 12 months? Yeah.
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Speaker 2: Wow.
00:07:37
Speaker 1: So, I mean.
00:07:42
Speaker 1: How do we make sense about the spend? You need the spend to be in it, right? These guys obviously have the money to do it, but they're increasingly tapping credit markets and debt markets, as we've often talked about. You guys still seem pretty upbeat.
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Speaker 4: Yeah, but think about it this way.
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Speaker 2: You have to invest that money because imagine the backlog that's on their balance sheets. And it's not as if they don't have really strong businesses that's driving revenue from them or cash flow from them from other side. I mean, this AWS, think about it this way, has operating margins close to 39%. That's a very good business to be in, frankly speaking. And once you gain some market share, you're going to go out and sell additional services, application modernization. I mean, we're just in this... start of this particular cycle. And I understand that cash flow is down this year. But frankly speaking, you look ahead, I mean, from the run rate of that they have for cloud, let's say about $ 180 billion, growing 40% each year. That's really commendable.
00:08:48
Speaker 1: Is there a narrative around all of them? I just think about what we've heard from Meta, from Microsoft, from Alphabet, from obviously Amazon today as well. I'm sure I'm leaving out one of them. But they're not all the same companies, Anurag. We know that. But is there a narrative around the AI spend and the payoff or no?
00:09:11
Speaker 2: It's not a question of payoff. I think what has changed in the last decade I would say six months or so are twofold. One is that interest rates have gone up quite a bit. I mean, you're looking at, you know, people's ability to fund these expansion plans.
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Speaker 4: So that's one.
00:09:24
Speaker 2: The second is a changing political climate, which is seeing some opposition to data center buildup. So, you know, we all know the CapEx numbers right now. But what if the data center delivery becomes a delay? Then what happens is The cash flow is still negative, and your growth rate that you are projecting out doesn't realize because of factors that are not in your control. We saw Microsoft talk yesterday about there was a delay in data centers from one of their third parties. That's the first sign we have. What if something like this happens a lot next year because the political climate is extremely bad? negative towards new data center build?
Speaker 1: Bloomberg Audio Studios.
00:00:04
Speaker 2: Podcasts. Radio.
00:00:06
Speaker 3: News.
00:00:09
Speaker 4: This is a breaking news update from Bloomberg.
00:00:12
Speaker 5: Instant reaction and analysis from our 3,000 journalists and analysts around the world. Shares of her Intel down more than 20% right now. This after its revenue forecast missed analyst estimates. It was hurt by sputtering demand for PC processors and supply chain problems with its lucrative data center components. I want to bring in Kunjan Sabani, Senior Semiconductor Analyst for Bloomberg Intelligence. Kunjan, this stock was up 150% going into today's print, but still a 20% haircut is a big haircut no matter which way you look at it. What's your take on this print?
00:00:49
Speaker 3: Yeah, I mean, look, the massive misses on the 4Q guide is just very surprising. We all knew that the PC market is not looking that strong, but the results that came in are, again, surprising. At least from what we have seen so far, it looks to me that, you know, the data center, which was upbeat, is looking strong, but they cannot get enough supply there to sell more into the data center. And the headwinds from the PC are large enough that whatever they are able to get more supply on the data center side and get a bead, it's not large enough to offset. One more key important point here is that gross margin miss. That's very substantial. We finally had Intel getting to sort of the mid 40s after a few quarters of really good work. And so we are back down again with almost 600 plus basis point of a decline quarter over quarter.
00:01:42
Speaker 4: That's substantial.
00:01:43
Speaker 3: We think that's again coming from Intel trying to get more supply and push more on the data center side.
00:01:48
Speaker 4: Which is where the future is. But that comes at the cost of.
00:01:53
Speaker 3: Lower margins, loading up the factories on the new nodes, which are, again, a headwind to the margins. And the PC business, which is a better margin business, not doing so well. So the mix of combinations between data center and PC is not helping Intel.
00:02:07
Speaker 1: Yeah, Kunjan, you know, what's interesting, too, is, you know, is it a case of that if they could get all the supply they needed in order to meet demand, we would be having a very different conversation today? Or is it more than that because of what we're seeing on the PC side?
00:02:22
Speaker 3: If they were able to get more demand on the data center side, on the revenue line item, we would not see such a big deviation. It would still be able to offset the weak demand in PC. But I think we would still have seen some headwinds on gross margin. Remember, data center products, the more they ship right now, it's a headwind for gross margin because it's a lower gross margin. They are loading it all up on the newer nodes, which are much more expensive until you reach a certain point.
00:02:49
Speaker 4: Where it starts being more profitable.
00:02:51
Speaker 3: So we would have seen less of an impact on the top line, but still an impact on the gross margins.
00:02:59
Speaker 1: You know, it's interesting. We had a conversation earlier with one of our guests here at Schwab Impact in Boston. And this kind of concept of, you know, you kind of have to invest for the future so that if you look at a company like Alphabet, which just got creamed today in today's session, if you think about the market cap drop that it endured, that this whole idea that you're investing in the future of Alphabet. and if you believe in the course and the impact of AI. And I do wonder about Intel. Have they righted the ship, made the changes they need for an Intel of the future, and that investors need to be patient here?
00:03:36
Speaker 3: I think investors do need to be patient, and they have been patient. Look, they are investing here for the future. Investing to bring up capacity in the data center and focusing on the data center is the right choice because that is the better, faster growing end market in the future. And the North Star for Intel, again, remains that foundry business. which they've done a lot of progress on. But you look, you are in an environment where every single one of your peers is beating by billions of dollars. You know, they are guiding up their revenues multiple times in a year just for future years. Folks are giving guidance more than two years out when it comes to your semi peers.
00:04:14
Speaker 4: So there's also that peer pressure, right?
00:04:17
Speaker 3: So for investors, when they're looking at other semi companies, which are giving such robust results, both in near-term and outward guidance. It's just difficult to stay patient when you see such hiccups.
00:04:27
Speaker 2: On the way.
00:04:31
Speaker 1: All right, so top question that you think has to be asked on this call with analysts and investors from the Intel C-suite.
00:04:39
Speaker 4: I think two questions, right?
00:04:40
Speaker 3: When do we really expect sort of the gross margin trajectory to really find a floor? We have seen this repeat a couple of times where we see positive progress on gross margin and suddenly we hit a quarter where We sort of take one step forward and two steps back. And I think the second question remains, how is the progress going on the Foundry side? We have seen a lot of announcements, positive announcements around packaging, and their packaging technology.
00:05:06
Speaker 4: Is really differentiated.
00:05:07
Speaker 3: We really want to start seeing significant material revenues come out of that business.
00:05:16
Speaker 1: Is there any other semiconductor name that we should be watching as a result of what we're seeing from Intel? Just real quickly.
00:05:22
Speaker 4: Yeah, next week, AMD.
00:05:23
Speaker 3: Again, AMD is also exposed to the similar PC head markets, but we don't think they will do much worse because of their exposure and share gains. But that's something we'll be watching carefully.
00:05:36
Speaker 1: All right. Going to leave it on that note. Kunjan Subani, he is Senior Semiconductor Analyst at Bloomberg Intelligence, joining us, of course, on Intel shares, continuing to trade lower in today's session, down about 18.5%.
00:05:48
Speaker 5: Hey, Amazon shares are lower in the after hours as well, down about 6.7%. Third quarter AWS net sales, excluding FX, did beat estimates. The company still sees year cash capex at about $ 220 billion. It sees fourth quarter net sales, $ 240 to $ 247 billion. That's in line with estimates at $ 244 billion and a half. Third quarter AWS net sales, excluding FX, was up above estimates at 39%. I want to bring in Anurag Rana, Senior Tech Analyst at Bloomberg Intelligence. He joins us from our Chicago bureau. Anurag, we just spoke to Kunjan about Intel, shares of Intel down, wow, close, you know, 20% at this point. Shares of Amazon are down lower in the after hours right now by 6.7%. Your takeaways from this print?
00:06:33
Speaker 2: Yeah, when you look at cloud results from both Google and Microsoft, we saw a big beat on the growth rate. I think in the case of Amazon, they just went ahead and met the expectations at 39%. So basically, you know, that is probably what's causing the shares to go down. But I'd also point out to one particular thing that they said. they're expecting AWS sales to be above 40% into 27 and 28. I think that's a very, very strong numbers given where we are in the cycle. So I think in my view, people are maybe disappointed that they didn't beat AWS by a big number. But from our side, I think we really like those 40% numbers.
00:07:14
Speaker 1: Yeah, it's interesting too. Amazon in total sees revenue growth rates of over 40% in 2027 and 2028. Free cash flow falling to an outflow of $ 42. 4 billion.
00:07:27
Speaker 2: Wow.
00:07:28
Speaker 4: Repeat that?
00:07:30
Speaker 1: And cash flow fell to an outflow of $ 42. 4 billion for 12 months, I guess, trailing. For trailing 12 months? Yeah.
00:07:37
Speaker 2: Wow.
00:07:37
Speaker 1: So, I mean.
00:07:42
Speaker 1: How do we make sense about the spend? You need the spend to be in it, right? These guys obviously have the money to do it, but they're increasingly tapping credit markets and debt markets, as we've often talked about. You guys still seem pretty upbeat.
00:07:57
Speaker 4: Yeah, but think about it this way.
00:07:59
Speaker 2: You have to invest that money because imagine the backlog that's on their balance sheets. And it's not as if they don't have really strong businesses that's driving revenue from them or cash flow from them from other side. I mean, this AWS, think about it this way, has operating margins close to 39%. That's a very good business to be in, frankly speaking. And once you gain some market share, you're going to go out and sell additional services, application modernization. I mean, we're just in this... start of this particular cycle. And I understand that cash flow is down this year. But frankly speaking, you look ahead, I mean, from the run rate of that they have for cloud, let's say about $ 180 billion, growing 40% each year. That's really commendable.
00:08:48
Speaker 1: Is there a narrative around all of them? I just think about what we've heard from Meta, from Microsoft, from Alphabet, from obviously Amazon today as well. I'm sure I'm leaving out one of them. But they're not all the same companies, Anurag. We know that. But is there a narrative around the AI spend and the payoff or no?
00:09:11
Speaker 2: It's not a question of payoff. I think what has changed in the last decade I would say six months or so are twofold. One is that interest rates have gone up quite a bit. I mean, you're looking at, you know, people's ability to fund these expansion plans.
00:09:23
Speaker 4: So that's one.
00:09:24
Speaker 2: The second is a changing political climate, which is seeing some opposition to data center buildup. So, you know, we all know the CapEx numbers right now. But what if the data center delivery becomes a delay? Then what happens is The cash flow is still negative, and your growth rate that you are projecting out doesn't realize because of factors that are not in your control. We saw Microsoft talk yesterday about there was a delay in data centers from one of their third parties. That's the first sign we have. What if something like this happens a lot next year because the political climate is extremely bad? negative towards new data center build?
