(Bloomberg) — Intel Corp. fell in premarket trading after issuing disappointing forecasts on Thursday, renewing doubts about a long-promised turnaround at the once-dominant chipmaker.
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Intel’s first-quarter forecast for sales and earnings fell well short of Wall Street estimates, and executives struggled to allay concerns during a conference call with analysts.
The outlook suggests that CEO Pat Gelsinger still has a long way to go to restore Intel’s former prowess. Even as the chipmaker’s computing business recovers, demand is weakening in the lucrative data center chip market.
Intel is also facing a slowdown in programmable chips and components for autonomous vehicles, and a nascent business that makes semiconductors for other companies has yet to take off.
Shares of Intel fell more than 12% in premarket trading before the New York Stock Exchange opened after closing at $49.55 on Thursday. If the decline in early trading continues, Intel is expected to see its biggest decline since October 2021. The stock was already down 1.4% so far this month, trailing a 7.0% gain. 1% by the closely watched Philadelphia Semiconductor Stock Index.
First-quarter sales will be between $12.2 billion and $13.2 billion, the Santa Clara, Calif.-based company said. That compares to an average analyst estimate of $14.25 billion, according to data compiled by Bloomberg. Earnings will be 13 cents per share, less certain items, compared to a projection of 34 cents.
During the conference call, Gelsinger acknowledged that the first quarter was not going as well as hoped, but that he expected the remainder of 2024 to improve quarter over quarter. Intel’s efforts to return to the manufacturing edge are still on track, he said. This is crucial to improving your products and remaining competitive. He also said the chipmaker was no longer losing sales to PC and data center competitors.
“We know we have a lot of work ahead of us as we work to regain and strengthen our leadership position in each category in which we participate,” Gelsinger said.
One of the most ambitious elements of Gelsinger’s plan is to move into manufacturing chips for others — a field known as the foundry industry. Intel has committed to investing heavily in a network of factories around the world to continue this effort. But the company has not yet made public the names of the large customers participating in the project.
Without being specific, Intel said Thursday it had orders worth $10 billion to make and package chips for other companies — evidence of progress in this new field.
When asked, Gelsinger said the agreements reached so far were not enough.
“Clearly, as your question suggests, we need to get to a much higher number, and that’s exactly what we’re going to do,” he said.
Nvidia Corp. and Advanced Micro Devices Inc. have remained the stock darlings of the chip sector, largely because investors expect them to benefit the most from increased spending on artificial intelligence-related infrastructure.
Gelsinger said Intel would move forward in the market for so-called AI accelerators, Nvidia-like chips that help speed the development of artificial intelligence models. Growth in the AI sector will also increase demand for conventional Intel data center processors, he said.
But Intel’s efforts to modernize its facilities will weigh on profitability this year – and the hoped-for profits won’t arrive until later.
Intel’s gross margin – the share of sales remaining after deducting the cost of production – will be 44.5% in the first quarter. This compares to an estimate of 45.5%. Before its current problems emerged around 2019, Intel typically had profitability well above 60%.
Fourth-quarter earnings were 54 cents per share on revenue of $15.4 billion. Analysts had forecast a profit of 44 cents and revenue of $15.2 billion.
Data center sales came in at $4 billion, below the average forecast of $4.08 billion. Client Computing, Intel’s PC chip business, had revenue of $8.84 billion. That compares to an estimate of about $8.42 billion.
Intel said the PC market was emerging from an inventory glut and its biggest customers were starting to order parts again. Total PC shipments are expected to reach about 300 million units a year, Gelsinger said, helped by demand for new machines better able to handle artificial intelligence software and services. The total for 2023 was about 270 million, and growth will be a few percentage points this year, he said.
In servers, where Intel once had a market share of more than 99%, the company is facing increased competition and a change in its spending habits. Its long-time rival, AMD, has brought increasingly powerful chips to market that are winning over customers. In another worrying sign for Intel, some of the world’s biggest technology investors – including AWS and Microsoft Corp. from Amazon.com Inc. – design their own processors.
Intel’s outlook has also been clouded by a partially spun-off division. Earlier this month, Mobileye Global Inc., a maker of autonomous driving technology, gave full-year guidance that was well below analysts’ forecasts. Intel is still the majority shareholder of the Israeli company.
–With the help of Subrat Patnaik.
(Updates with premarket share performance. A previous version of this story corrected the wording of a comment from Intel.)
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