Grim Intel Outlook Tied to Weak PC Demand

We stumbled … we lost share … we lost momentum,” said CEO Pat Gelsinger.

Updated at 9:34 am EST

Intel  (INTC) – Get Free Report shares plunged lower Friday after the chipmaker posted weaker-than-expected fourth quarter earnings and said lingering weakness in PC demand would pressure margins and clip near-term profits over the coming months.

Intel’s adjusted bottom line for the December quarter was pegged at a 10 cents per share, while the Street had forecast a 20 cents per share profit. Revenues were also light at $14 billion, compared to a Street forecast of $14.5 billion, , while gross margins fell to 43.8%.

Client computing revenue fell 36% from last year to $6.6 billion, Intel said, with little overall support from its Data Center and AI division, where sales fell 33% to $4.3 billion. Network and Edge Group sales were down 1% to $2.1 billion.

Intel said it sees revenues slowing further, to between $10.5 and $11.5 billion over the current quarter

Gross margins for the three months ending in March are now expected to narrow to around 34.1%, nearly half of the chipmaker’s long-term target of around 60%.

With weak PC demand expected to last well into the first half of the year, and data center clients pulling back on spending plans amid broader macro uncertainty, Intel expects a March quarter loss of 15 cents per share.

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“We stumbled … we lost share … we lost momentum,” CEO Pat Gelsinger told investors on a conference call late Thursday. “We think that stabilizes this we’re (and) going to be building a road map that allows us to regain leadership for the long term in this critical market.”

“We’re confident in the strategic outlook that we have for our business, although the macro is difficult,” he added. “It was difficult in Q4. We expect it to remain difficult as we go through the first half of the year, but we’re laser-focused on controlling the things that we can and every aspect of our execution, cost management and transformation is in our hands and we are well underway in executing against those paths.”

Intel shares were marked 10.55% lower in early Friday trading to change hands at $26.92 each. Chip rivals were also under pressure, with Advanced Micro Devices  (AMD) – Get Free Report shares marked 1.3% lower at $74.15 each while Nvidia  (NVDA) – Get Free Report fell 0.7% to $196.65 each.

“While no full-year guidance was provided, Intel sees the first half correction will be followed by a second half recovery,” said KeyBanc Capital Markets analyst John Vinh, who lowered his near-term profit estimates but held onto his ‘sector weight’ rating for Intel stock.

“We expect 2023 will be another challenging year with limited catalysts,” he added. 

Intel’s delayed next generation ‘Sapphire Rapids’ chip is expected to ramp production later this year, but will likely still find it difficult to challenge Advanced Micro Devices’  (AMD) – Get Free Report new ‘Genoa’ data center chip which CEO Lisa Su said will translate into “lower capex, lower opex and lower total cos of ownership” for enterprises and for cloud data centers.

“Intel had high hopes that Sapphire Rapids would enable them to take the fight to AMD and regain some footing within the Data Centers,” said Lucas Keh, semiconductors analyst at Third Bridge. 

“However, our experts say that it has been a disappointment so far because of Intel’s continuous inconsistency in delivery,” he added. “They had to remove features in order to finally deliver Sapphire Rapids in a reasonable timeframe to the public amidst the delays.”

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