Intel’s stock slides on weak forecast – Business
Intel Corp. took a beating in after-hours trading today after reporting disappointing first-quarter financial results and a weak outlook that came in below most analysts’ forecasts.
The chipmaker reported a net loss for the quarter of $437 million, improving on the $2.8 billion loss it recorded one year earlier. On an adjusted basis, it delivered earnings of 18 cents per share, beating Wall Street’s target of 14 cents per share.
However, the company failed to beat expectations in terms of sales. It reported revenue rose 8% from a year ago, to $12.7 billion, still below the analyst target of $12.8 billion.
The results alone would have probably disappointed most investors, but the real downer was Intel’s sluggish forecast. The company said it’s expecting second-quarter revenue of between $12.5 billion and $13.5 billion, with earnings of about 10 cents per share. That came in way below the Street’s call for revenue of $13.6 billion and earnings of 25 cents per share.
Intel’s stock consequently tumbled in the after-hours trading session, falling more than 7%, erasing a gain of just over 1% that occurred during the regular session.
Mizuho analyst Jordan Klein said in a note to investors that the outlook is “much worse than expected” and will likely overshadow the company’s recent bullish talk about upcoming new products.
In a conference call with analysts, Intel Chief Financial Officer David Zinsner tried to generate a bit more optimism, saying that beyond the second quarter, the company expects to see growth across all of its business segments. He cited improving demand for general-purpose servers and a new generation of artificial intelligence-powered PCs, which have been dubbed “AI PCs.”
In addition, Zinsner said, the company expects a “meaningful Gaudi ramp in the second half.” He was referring to Intel’s new Gaudi 3 AI accelerator chip for servers, which is intended to compete against rival Nvidia Corp.’s graphics processing units that power most AI workloads today. The Gaudi 3 chips are expected to ship sometime in the second half of the year, and Intel hopes it will generate more than $500 million in sales before the year is out, Zinsner said.
In response to an analyst’s question about the company’s rising costs, Zinsner said it has been “a heavy year for start-up costs for us,” adding that this will affect the company even more during the second quarter. “That puts a little added pressure on gross margins,” he explained.
The company is forecasting a 40.2% gross margin in the second quarter, compared to 41% in the first quarter.
The weak outlook suggests that the long-term push by Intel Chief Executive Pat Gelsinger (pictured) to revitalize Intel is going to take yet more time and money before it comes to fruition. Intel was once the world’s No. 1 chipmaker, but it is now lagging behind rivals such as Nvidia in the server market thanks to the rise of AI, and faces competition from Advanced Micro Devices Inc. in areas such as personal computers. In terms of manufacturing, Intel is trailing behind Taiwan Semiconductor Manufacturing Co. in both revenue and technical know-how.
On the earnings call, Gelsinger said he’s still bullish on the company’s longer-term prospects. “We are one of two, maybe three companies in the world that can continue to enable next-generation chip technologies,” he said.
As for the most recent results, a breakdown shows that Intel’s biggest business unit, the Client Computing segment, delivered $7.5 billion in revenue, up 31% from a year ago and in-line with the Street’s forecast. The segment covers chip sales for PCs and laptops, and has been boosted by a broader industry uptick in PC sales and the emergence of AI PCs with built-in AI processors.
Intel’s Data Center and AI segment, which covers chip sales for servers, saw revenue increase 5%, to $3 billion, below the Street’s consensus of $3.3 billion. The business is under intense pressure from Nvidia, whose GPUs are perceived to be much more capable when it comes to processing and training AI.
The company also broke out financial results for its relatively nascent Foundry business. Earlier this month, the company announced it will be reorganizing Intel Foundry as a new line item with its own costs and sales, similar to the Client Computing and Data Center and AI segments. During the quarter, it generated $4.4 billion in revenue, down 10% from the year prior.
Even before today’s stock drop, Intel had been underperforming the broader chipmaking industry. Although some of its recent gains have evaporated, the PHLX Semiconductor Index, which tracks the stocks of chipmakers, is still up 10% in the year to date, outpacing the S&P 500 Index’s 6% gain. In contrast, Intel’s stock was down 30% in the year-to-date, prior to today’s action.