Intel tumbles after forecast suggests comeback is far off

Intel CEO Pat Gelsinger at Davos. Photo: Adrian Weckler

Ian King

January 27 2023 07:35 AM

Intel Corp. slid in late trading after giving a dire forecast for the current period, hurt by sinking demand from PC customers and tough competition in the lucrative market for server hardware.

First-quarter sales will be $10.5bn to $11.5bn, the chipmaker said in a statement Thursday. That compares with an average analyst estimate of $14bn. Intel expects to lose 15 cents in the quarter, excluding some items. Analysts had projected a profit of 25 cents.

At the low end of the forecast range, Intel's revenue would be the smallest quarterly total since 2010.

The outlook reflects the myriad challenges facing Intel, which was attempting to stage a comeback even before the market for personal-computer chips, its main source of revenue, fell into a slump.

To get back on track, the company needs computer makers to quickly work through inventory stockpiles and return to ordering components. That would provide Intel with a revenue boost needed to help shore up its finances, which were already stretched by ambitious plans to regain technological leadership within the chip industry.

Intel shares fell more than 7pc in late trading following the announcement. Earlier, they closed at $30.09. The stock had gained 14pc this year, part of a rally for chip equities.

The chipmaker also has been cutting costs to cope with the slowdown. Three months ago, Intel said that headcount reductions, slower spending on new plants and other belt-tightening moves will result in savings of $3bn this year. That figure will swell to much as $10bn annually by the end of 2025, the company said.

In the fourth quarter, Intel posted a net loss of $664m, or 16 cents a share, down from a profit in the same period a year ago. Revenue dropped 32pc to $14bn, hitting its lowest level since 2016.

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

The grim results show Intel falling further behind rivals. Its 2022 revenue total was lower than that of Taiwan Semiconductor Manufacturing Co., a chipmaker that supplies many of the US 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 fuelled by the work-from-home trend. PC shipments sank 16pc 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 70pc. But its hold on that lucrative market has slipped. The company was slow to introduce new products in recent years, and rivals such as Advanced Micro Devices Inc. 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 99pc of the market.