Intel's forecast disappoints, signalling dimmer PC demand

INTEL, the world's biggest maker of computer processors, reported lacklustre quarterly revenue in its data centre business and gave a disappointing sales and profit forecast for the current period, indicating weaker demand for its chips across the board. Shares declined in late trading.

Profit in the second quarter will be 70 US cents a share, excluding some items, Intel said Thursday (Apr 28). Revenue will be about US$18 billion. Those targets fell below average analysts' estimates of 82 US cents on US$18.5 billion in sales, according to data compiled by Bloomberg. Gross margin, a measure of profitability that represents the percentage of sales left after deducting production costs, will be 51 per cent.

PC chip revenue declined in the first quarter as some customers cut orders to reduce unsold inventory and consumers bought fewer devices for education purposes, Intel said. The report comes amid escalating concern that overall demand for consumer PCs - Intel's largest source of revenue - is sputtering following a boom that was fuelled by pandemic-related working and studying from home.

That threatens to shake investors' faith in assurances by chief executive officer Pat Gelsinger that Intel will gain market share and resume faster revenue gains, reversing the trends that plagued the company under his predecessors.

In the first quarter, the Santa Clara, California-based company said sales fell to US$18.4 billion, compared with the average US$18.3 billion analysts had predicted. Profit was US$8.11 billion, or US$1.98 a share, compared with US$3.36 billion, or 82 US cents, in the same period a year earlier.

Sales in the data centre division rose 22 per cent to US$6 billion in the recent quarter but missed the average analyst estimate of US$6.91 billion. Client computing, Intel's PC chip unit, posted revenue of US$9.3 billion, below the US$9.39 billion projection and declining 13 per cent from a year earlier.

Intel shares dropped about 4 per cent in extended trading, after closing at US$46.84 in New York trading. The stock has fallen 9 per cent this year, losing less ground than semiconductor stocks in general after 2 years of lagging the market.

Gelsinger, who took over as Intel's top executive in the first quarter of last year, has outlined an ambitious plan to restore the company's leadership of the semiconductor industry and branch out into new areas. His makeover will cost billions, including new plants in the US and Europe that he will open to manufacturing chips for other companies, even rivals. The company is planning to spend a record US$27 billion on new plants and equipment, Intel said on Thursday.

Gelsinger and new chief financial officer Dave Zinsner have faced repeated questions about what the heavy investment will do to the company's profit margins, which were once the envy of the industry. Zinsner has promised that gross margin will stay in the 51 per cent to 53 per cent range. Part of Intel's spending will be offset by government subsidies aimed at fostering a return of chip manufacturing to the US and Europe, he said. Gelsinger said that within 5 years those margins will return to historic levels, which were typically above 60 per cent.

Investors have welcomed Gelsinger's aggressive plans to make Intel's products and manufacturing technology competitive again after delays and poor decisions under past CEOs allowed rivals to catch up and overtake it. The significant costs of his makeover have many waiting for the first signs of gains against Advanced Micro Devices, Nvidia and Taiwan Semiconductor Manufacturing before they return to investing in Intel shares.

The company maintained its prediction for annual sales of US$76 billion, which would be an increase of 2 per cent from 2021. Its target for gross margin for the whole of 2022 is 52 per cent, and earnings per share will be US$3.60. BLOOMBERG