INTEL, the biggest maker of personal computer (PC) processors, tumbled the most in three months on Friday (Apr 26) after giving a lacklustre forecast for the current period, indicating that it’s still struggling to return to the top tier of the chip industry.

Sales in the second quarter will be about US$13 billion, the company said on Thursday. That compares with an average analyst estimate of US$13.6 billion, according to data compiled by Bloomberg. Profit will be 10 cents a share, minus certain items, versus a projection of 24 US cents.

The outlook signals that a push by chief executive officer Pat Gelsinger to revitalise Intel is going to take more time and money. Once the world’s dominant chipmaker, the company is lagging behind rivals such as Nvidia and Taiwan Semiconductor Manufacturing in revenue and technological know-how.

Gelsinger remains confident that Intel is on the right track, both in the near term and the long run. He said the company is making headway in its effort to become a so-called foundry, a company that sells outsourced chip production to outside customers.

Demand is “a bit tepid in the first half, but we see a lot of improvement as we go through the year”, he said. “We are going to see progress in the foundry business every quarter from now until the end of the decade.”

Intel shares fell 9.2 per cent to US$31.88 at the close in New York, the biggest single-day decline since January. The stock had already declined 30 per cent this year to the close on Thursday, making it the second-worst performer on the Philadelphia Stock Exchange Semiconductor Index.

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In the first quarter, the Santa Clara, California-based company had a profit of 18 US cents a share, excluding certain items, and revenue of US$12.7 billion. Analysts had estimated a profit of 13 US cents a share and sales of US$12.7 billion.

While acknowledging that business has been slower than expected, chief financial officer Dave Zinsner said he expected an improvement later this year. Intel also was not able to meet all the demand for processors used in new AI-enabled PCs because its packaging facilities were not able to produce enough components.

“The first half of the year has been a bit softer than we’d have liked,” he said. “The back half of the year is going to have some pretty good strength in it.”

The chipmaker is reporting earnings for the first time under a new business structure that shows the financial performance of its manufacturing operations. Gelsinger has said the approach is a necessary step to make operations more efficient and competitive.

Earlier this month, the company gave investors the first look at the financial state of its factory network. It was not encouraging. Spending on new plants has caused losses to widen, and Intel does not expect the business to reach a break-even point for several years.

Intel Foundry, the new division responsible for manufacturing, had sales of US$18.9 billion in 2023, down from US$27.5 billion the previous year. The unit had revenue of US$4.4 billion in the first quarter of 2024.

The foundry business had an operating loss of about US$2.5 billion in the first quarter, wider than the losses posted in the preceding quarter and the one a year earlier.

The company’s PC-related chip sales were US$7.5 billion, compared with an average estimate of US$7.4 billion. Its data centre and artificial intelligence (AI) division had revenue of US$3 billion, in line with Wall Street projections. Networking chips provided nearly US$1.4 billion of sales, beating an average estimate of US$1.3 billion.

Gross margin – or the percentage of sales remaining after deducting the cost of production – was 45.1 per cent in the quarter. That closely watched measure, which reflects the efficiency of Intel’s manufacturing operations, will be 43.5 per cent in the current period. Historically Intel has posted margins of more than 60 per cent.

Intel remains optimistic about the second half of the year because it’s rolling out a new version of the Gaudi chip – its answer to the red-hot AI accelerators sold by Nvidia. That product line will bring in about US$500 million in sales this year, once the latest version goes on sale, Intel projected.

The company also is making progress at reining in costs and expects the manufacturing business to break even in the “next couple of years”, Zinsner said.

Gelsinger said the company has signed up another customer for a production technology called 18A, which Intel will introduce in 2025. That brings the total to six. The customer, which Intel did not identify, is in the aerospace-defence industry and wants production located in the US, Gelsinger said.

So far, the chipmaker has only been able to name one company that’s signed up to use 18A: Microsoft. It plans to rely on Intel to produce certain types of in-house chip designs that the software maker is working on. BLOOMBERG