Intel Tumbles After Forecast Suggests Comeback Is Far Off

(Bloomberg) — Intel Corp. gave one of the gloomiest quarterly forecasts in its history after a personal-computer slump ravaged the chipmaker’s business, sending shares tumbling and further setting back turnaround efforts.

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The company predicted a surprise loss in the current period and a sales range that missed analysts’ estimates by billions of dollars. At the low end of Intel’s projections, revenue would be the smallest quarterly total since 2010.

It’s a painful admission for a company that has been attempting a multiyear comeback under Chief Executive Officer Pat Gelsinger, who took the helm in 2021. A post-pandemic downturn for Intel’s main business, PC chips, has torpedoed efforts to get the company back on course. Instead, its finances are in their worst state in years.

Intel’s latest results and its outlook were both “very weak,” Wells Fargo & Co. analyst Aaron Rakers said in a note, and there was no forecast for the full year.

Intel shares fell more than 9% Thursday in late trading following the announcement. Earlier, they closed at $30.09.

The stock had increased 14% this year, part of a rally for chip equities, but Intel’s after-hours decline threatens to wipe out most of that gain.

The company predicted that its gross margin — the percentage of sales remaining after deducting the cost of production — would be 39% in the first quarter. That’s down 14.1 points from the same period a year ago and more than 10 points narrower than that of its nearest rival, Advanced Micro Devices Inc.

First-quarter sales will be $10.5 billion to $11.5 billion, the chipmaker said. That compares with an average Wall Street estimate of $14 billion. Intel expects to lose 15 cents in the quarter, excluding some items. Analysts had projected a profit of 25 cents.

To get back on track, the company needs computer makers to quickly work through inventory stockpiles and return to ordering components. That would help Intel shore up its finances, which were already stretched by ambitious plans to upgrade its technology.

“We will continue to navigate the short-term challenges while striving to meet our long-term commitments,” Gelsinger said in a statement.

In the fourth quarter, Intel posted a net loss of $664 million, or 16 cents a share, down from a profit in the same period a year ago. Revenue dropped 32% to $14 billion, hitting its lowest level since 2016.

Excluding certain items, profit was 10 cents a share. Wall Street was looking for a profit of 19 cents on sales of $14.5 billion.

The company expects “volatility across all markets” this year. The PC market will be a particular weak spot, shrinking to the lower end of Intel’s range of predictions — or about 270 million units.

The server market will also contract in the first half of the year, Intel said. Like PC makers, those customers are cutting orders while they work through unused stockpiles. Intel expects the server market to resume growth in the second half of 2023.

Client computing revenue shrank 36%, and operating income at the PC chip unit contracted 82%. The consumer and education markets were especially hard hit, Intel said. Data-center sales contracted by a third, and that businesses’ operating profit was slashed by 84%.

Intel has been cutting costs to cope with the slowdown. Three months ago, it said that headcount reductions, slower spending on new plants and other belt-tightening moves will result in savings of $3 billion this year. That figure will swell to much as $10 billion annually by the end of 2025, the company said.

The grim results show Intel falling further behind rivals. Its 2022 revenue total was lower than that of Taiwan Semiconductor Manufacturing Co., a chipmaker that supplies many of the US company’s competitors and enables some customers to design their own components. Already, the once-dominant Intel had fallen behind Samsung Electronics Co. in sales.

The computer industry is undergoing a giant reset in the aftermath of a sales surge fueled by the work-from-home trend. PC shipments sank 16% in 2022 and will decline again to as little as 260 million this year, according to an estimate by Northland Securities analyst Gus Richard. That’s down from nearly 350 million in 2021.

Intel still dominates the market for processors used in servers, with a share of more than 70%. But its hold on that lucrative market has slipped. The company was slow to introduce new products in recent years, and rivals such as Advanced Micro Devices Inc. made gains. Some customers also are developing in-house chips to replace Intel processors.

That’s all brought a painful comedown for Intel, which once controlled 99% of the market.

(Updates with analyst’s commentary in fourth paragraph.)

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