Intel’s stock falls on double whammy of earnings miss and dismal guidance
Intel Corp. left investors with no illusions today about the struggles it’s facing amid an economic downturn that has proven to be especially brutal for chipmakers.
The company missed Wall Street’s targets on both earnings and revenue and offered weak guidance too, sending its stock down more than 9% in extended trading.
Intel reported earnings before certain costs such as stock compensation of just 10 cents per share, way below the 20-cent-per-share profit expected by analysts. Revenue for the period fell 32% from a year ago, to $14.04 billion, below the $14.45 billion consensus estimate.
That represents the fourth consecutive quarter of falling sales for Intel, which recorded a net loss of $664 million for the quarter — a stunning reversal from the $4.62 billion profit it made in the same period one year before.
The full-year picture didn’t do much to mask Intel’s troubles either. The company reported annual revenue fell 20% from fiscal 2021, to $63.1 billion. Full-year earnings came to $1.94 per share, with $4.86 per share in 2021. Intel ended the year with $8 billion in net income, less than half the $19.9 billion it earned a year ago.
Intel is forecasting yet more pain for the coming quarter. In its first-quarter guidance, it’s guiding for a net loss of 15 cents per share on revenue of between $10.5 billion and $11.5 billion. That compares with Wall Street’s forecast of a profit of 24 cents per share on revenue of $13.93 billion.
Intel Chief Executive Pat Gelsinger (pictured) said in a conference call the company is not offering any full-year guidance given “uncertainty in the current environment.” He added that Intel is going to face “persistent economic headwinds” for the first half of the year.
A deeper look at Intel’s numbers shows that the chipmaker is struggling in all areas now. The Client Computing Group, which includes chips for personal computers, delivered $6.63 billion in sales, down 36% from a year ago and below Wall Street’s estimate of $7.68 billion. The market for PCs has collapsed after enjoying a couple of boom years during the pandemic and the rise of remote working.
Intel said demand for PCs fell most acutely in the consumer and education markets, where its customers have been steadily reducing inventory. Its numbers tally with a recent report from Gartner Inc., which said the PC market declined more rapidly in the last quarter than at any time since the 1990s.
Intel’s Data Center and AI segment, which covers chips for servers, flash memory and field-programmable gate arrays, did little better, with $4.3 billion in revenue. That’s down 33% from a year ago, though it was at least just ahead of the analysts consensus estimate of $4.17 billion.
Elsewhere, Intel’s Network and Edge segment, which includes networking chips, generated $2.06 billion in sales. That’s down 1% from a year ago, and below Wall Street’s forecast of $2.26 billion.
Analysts told SiliconANGLE that Intel is enduring a very tough time at the moment, but were unanimous in their verdict that some short-term pain is going to be necessary for the longer-term health of the company.
“Intel had a very rough quarter, driven by a combination of macroeconomic, transformation expenses and competitive issues,” said Patrick Moorhead of Moor Insights & Strategy. “Aside from the issues of the quarter and past year, I believe people also need measure the company’s long-term capabilities. Intel has been in a manufacturing technology rut for years now but recently confirmed that it’s on track for five nodes in four years. This would likely bring Intel back into the leadership state.”
Analyst Glenn O’Donnell of Forrester Research Inc. told SiliconANGLE that Intel’s problems cannot really be blamed on the current leadership under Gelsinger. He said economic conditions have seriously hurt purchases of PCs, servers and networking equipment, and no one can really do anything about them. Rather, he explained, Intel’s struggles stem from its prior leadership’s lack of focus on manufacturing, which led to its falling behind rivals such as Taiwan Semiconductor Manufacturing Co.
“To regain manufacturing prominence, Intel needs to spend a boatload of capital,” O’Donnell said. “Wall Street is punishing the company for this capex because it hurts Intel’s short-term financial performance. It will pay off in the long run, but Wall Street is concerned more with the next quarter than the next few years.”
Holger Mueller of Constellation Research Inc. said the biggest challenge for Gelsinger this year will be to persuade the company’s board of directors and major shareholders to keep funding Intel’s long-term plans. “Research and development spending was up for both the fourth quarter and the full year, and it shows with Intel taking a big hit on the profit side,” Mueller said. “It remains to be seen if the board and investors will have the same fortitude in 2023. But that backing will be critical for Intel to execute its technology turnaround.”
During the quarter, Intel finally spun off the autonomous vehicle chip unit Mobileye, which it had acquired for $15.3 billion back in 2017. The new entity, Mobileye Global Inc., was listed on the Nasdaq exchange, though Intel still retains most of the voting power of its common stock. Mobileye surprisingly beat analysts’ expectations as it delivered its fourth-quarter earnings results today.
In an effort to stop the rot, executives told analysts that the company has opted to extend the useful life of some of its equipment from five to eight years, a move that will help to boost gross profit by around $2.6 billion this year. That follows a separate, multibillion-dollar cost savings plan for 2023 that was announced in October. On Wednesday, IBM Corp. announced a similar plan to extend the life of some equipment as part of its own cost-cutting measures.
Despite attempting to save costs, Intel said this month it will forge ahead with its plans to begin construction of a new $21 billion chip fabrication plant in Magdeburg, Germany, that’s partly being funded by the German government.
The only real bright spots for Intel during the quarter were on the product front, where it finally announced the availability of its long-delayed 4th Gen Xeon scalable processors. The new Intel Xeon CPU Max Series and the Intel Data Center GPU Max Series central processing units are aimed at artificial intelligence, cloud, networking and supercomputing workloads, and promise a big leap in data center performance and efficiency.
Intel also debuted a new desktop processor, the Intel Core i9-13900KS, which is said to be the first in the industry to deliver frequencies of up to 6 gigahertz without overclocking.
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