Intel & Twitter Q2 2020 – Internal affairs.

Intel – The execution game.

• Intel reported good results and guidance driven by the pandemic but the news of another delay to its 7nm process caused consternation and increased concerns that Intel is losing its grip on manufacturing leadership.
• Q2 2020 revenues / EPS were $19.7bn / $1.19 ahead of estimates of $18.6bn / $1.04 as the stay at home trend boosted both the data centre business (43% YoY) and the PC business (7% YoY).
• Intel expects this to continue into Q3 and Q4 boosting both its guidance for Q3 2020 and FY 2020 revenues.
• However, the 7nm chip problem has struck again as yields have remained below expectations although Intel says that it has identified the issue and knows how to fix it.
• The practical upshot is another delay meaning that 7nm is now 12 months behind target meaning the first CPU products will be available in late 2022 or early 2023.
• This is a serious setback as technology leadership and execution is what Intel is known for and now it appears that TSMC could be a whole node ahead of Intel (3nm) by the time it ships 7nm.
• It also creates a further headache in that AMD may well be coming out with cutting edge products before Intel does potentially costing Intel market share and brand value.
• In the meantime, the roadmap for 2020 and 2021 should ensure that Intel continues to benefit from the current pandemic trend.
• This gives Intel time to get itself back on track but there could easily be more problems further down the road.
• Intel needs to knuckle down and win back the crown that is currently residing in Taiwan.

Twitter – Bait and switch.

• Twitter reported poor Q2 2020 results but managed to switch investor focus onto user numbers and a potential subscription service which would further increase monetisation.
• Q2 2020 revenues / EPS were $683m / LOSS $1.56 compared to forecasts of $658m / LOSS$0.15.
• However, daily active users (DaU) were well ahead at 186m compared to the 173m forecast as users stuck at home remained glued to their phones.
• Unfortunately, Twitter suffered from the general decline in digital advertising spend as it is more like a broadcaster than a social media service and did not benefit from the switch to social as has been enjoyed by Snap (and most likely Facebook).
• Twitter also floated the idea of a subscription service but stressed that this would be complementary to its advertising business rather than a replacement.
• The question, of course, is subscription to what as Twitter has dabbled with media consumption before and largely failed to make anything of it.
• I suspect that the travails of Quibi will make it think twice about going down that road again.
• Normally these weak results would have pushed the shares down, but Twitter’s shares have always been very sensitive to user numbers like Snap.
• Users numbers are pretty far from profits or value and so I remain very wary of any investment that replaces users for profit when it comes to valuation.