Intel forecasts quarterly revenue below estimates, stock falls
INTEL on Thursday (Jan 25) forecast revenue for the first quarter that could miss market estimates by more than US$2 billion, as it grapples with uncertain demand for its chips used in the traditional server and personal computer (PC) markets.
Shares fell 10 per cent in after-hours trading, setting the stock up for a roughly US$20 billion fall in market value on Friday if the losses held. Intel stock gained 66 per cent in the past year, as the PHLX Semiconductor Index rose 53 per cent.
In an interview, chief executive officer Pat Gelsinger said that the company’s core businesses of PCs and servers were hitting seasonal low demand at the same time as noncore businesses such as auto chip firm Mobileye. Intel no longer gives full-year financial forecasts, but Gelsinger said the company has US$2 billion worth of orders for its artificial intelligence (AI) chips and expects better sales later in the year.
“We see every quarter improving both year-on-year and sequentially and revenue and earnings as we go through the year.”
The chipmaker expects adjusted first-quarter revenue in the range of US$12.2 billion to $13.2 billion, compared with analysts’ average estimate of US$14.50 billion, according to LSEG data. Intel forecast first-quarter profit of 13 US cents a share, excluding one-time items. Analysts expected 33 US cents a share.
Heavy investments have toppled Intel’s gross margin, which fell to the mid-30s earlier in 2023, from prior highs of over 60 per cent. Intel, however, mildly recouped with an adjusted gross margin of 45.8 per cent in the third quarter. Intel reported a fourth-quarter gross margin of 48.8 per cent.
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“Investors are beginning to collect the bill from last year’s massive AI investments, and this is a clear message for the earnings season going forward. This means the company will need to shift its focus from the (personal computer) division and start delivering solid profits from data centres and AI – or else face further stock declines,” said Thomas Monteiro, senior analyst at Investing.com.
Analysts have proclaimed 2024 as a “make-or-break” period for Intel. They believe this will be the year that determines whether Intel actually stands to gain from the rollout of much-coveted AI PCs and its AI-enabling chips.
A shift in spending to AI data servers, dominated by rivals Nvidia and aspiring AI competitor Advanced Micro Devices, has sapped demand for traditional server chips – Intel’s core data centre offering. Intel’s fourth-quarter data centre revenue fell 10 per cent to US$4 billion.
“Intel is late to data centre AI,” said Kinngai Chan, an analyst at Summit Insights. “We think this is impacting its first-quarter 2024 data centre outlook.”
Intel is not yet competitive in the market for AI-specific chips, but the company’s central processing units (CPUs) are often used in conjunction with Nvidia’s AI chips. Gelsinger told Reuters that about a third of Intel’s server CPUs are now sold as part of AI systems, and that the company also expects more purchases of traditional servers this year.
“We’re past the worst of it,” Gelsinger said, referring to Intel’s server CPU business.
Intel’s self-driving technology unit, Mobileye, reported fourth-quarter revenue below estimates after warning of a pullback in orders from customers clearing inventory hurting its results this year.
In the conference call late on Thursday, Intel said it had won chip manufacturing business from a “significant high-performance computing customer” – a decision based on Intel’s US factory capacity. Intel did not disclose the customer’s name.
Intel is one of the largest suppliers of PC chips by market share. Its weak forecast dampens hopes of the PC market recovering after some signs that the post-pandemic slump was over. Revenue in the client segment, which houses Intel’s PC business, gained 33 per cent to US$8.8 billion during the quarter. Company executives said Intel expects to ship 40 million AI-enabled PCs.
During the fourth quarter, shipments of PCs declined year-on-year for the eighth consecutive quarter, according to data from research firm Counterpoint.
Intel, which was once at the helm of the semiconductor industry as a leading chipmaker, has slumped in recent years. Under Gelsinger, turnaround efforts have amounted to a renewed focus on building manufacturing capabilities and advancing its semiconductor technology. REUTERS
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