Intel gives one of its grimmest forecasts ever, slamming shares

Intel Corp. is forecasting one of the worst quarters in its history, touching off a broader selloff of chips companies as a slowdown in personal-computer sales ravages the industry.

Late Thursday, Intel gave a sales range that missed analysts’ estimates by billions of dollars, warning that revenue could fall to the lowest quarterly level since 2010. Shares plunged 10%, the most since July, in New York. Advanced Micro Devices Inc., Applied Materials Inc., Lam Research Corp. and Qualcomm Inc. declined. Semiconductor maker KLA Corp., which issued its own disappointing outlook, also slid.

Chip companies are reeling over a steep decline in demand for PC processors that has wiped out profits and led to deep cuts across the industry. Intel’s outlook signals more pain to come. The company is eliminating jobs and slowing spending on new plants in an effort to save as much as $10 billion. It’s taking an especially large hit from losing market share to rivals.

“This company is no longer the bellwether it used to be for the chip stocks, but it’s still an important one,” Matthew Maley, chief market strategist at Miller Tabak + Co. “Therefore, the fact the stock is reacting so poorly to its earnings report should weigh on the broad market today.”

It was 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’s financial performance back on course. Instead, it’s only losing more ground.

“I’d like to remind everyone that we’re on a multiyear journey,” Gelsinger said during a conference call.

Forecast miss

The stock had increased 14% this year, part of a rally for chip equities, but Intel’s decline wiped 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, AMD.

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

On an adjusted basis, Intel’s first-quarter forecast marks its first prediction of a loss in decades.

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.

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.

Under Gelsinger’s plan, Intel aims to accelerate the introduction of new manufacturing technology — ramping up at a rate that’s never been attempted before in semiconductors. He’s also planning to build factories in the U.S. and Europe, shifting the concentration of production away from Asia, and turn into more of a contract manufacturer, handling outsourced work for other companies and challenging Taiwan Semiconductor Manufacturing Co.

On a brighter note for investors, the company remains committed to offering a competitive dividend, Chief Financial Officer Dave Zinsner said Thursday.

Volatility expected

The company expects “volatility across all markets” this year. The PC market is particularly weak, shrinking to the lower end of Intel’s range of predictions. The server market will also contract in the first half of the year, Intel said. The consumer and education markets were especially hard hit, while data-center sales contracted by a third.

The grim results show Intel falling further behind rivals. Its 2022 revenue total was lower than that of TSMC, a chipmaker that supplies many of the U.S. 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 AMD 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.

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