Intel beats expectations but lower outlook sends its stock down 4% in late trading
Shares of the chipmaker Intel Corp. fell more than 4% in after-hours trading today after the company offered lower-than-expected guidance for its fiscal second quarter.
The company reported first-quarter net income of $8.1 billion, with earnings before certain costs such as stock compensation coming to 87 cents per share. Revenue for the period came to $18.35 billion, down 7% from the same period last year.
The performance was better than expected, with Wall Street modeling earnings of 81 cents per share on revenue of $18.31 billion.
However, the good work was undone when Intel offered a somewhat more cautious outlook than the market was expecting. For the second quarter, it expects earnings of 70 cents per share on $18 billion in revenue, some way below the analyst consensus of 83 cents per share in earnings and $18.38 billion in revenue.
The after-hours stock drop erased a 3.5% gain by Intel’s stock during the regular trading session.
“Intel beat on revenue, earnings and gross margin but had a weaker second-quarter forecast based on challenges in Shanghai,” said analyst Patrick Moorhead. “It did stick to its annual guidance, but I think the market is skeptical.”
Intel Chief Executive Pat Gelsinger (pictured) said in a statement that the company had gotten off to a strong start in the new fiscal year, but in a call with analysts he warned that “the industry will continue to see challenges until at least 2024 in areas like capacity and tool availability.”
The company struggled with similar challenges during the first quarter. Intel’s Client Computing business group, which includes chips for personal computers, generated $9.29 billion in sales, down 13% from one year ago and below the expected $9.42 billion consensus. The research firm Gartner Inc. said recently that PC shipments dropped by 6.8% during the quarter, though on Tuesday Microsoft Corp. said it saw strength in the business PC market.
Intel said sales of desktop PC and notebook chips declined during the quarter amid software demand from consumers and in education. Apple Inc. has also shifted to use its own PC processors. And device makers have reportedly been reducing their inventories to match the softer demand.
Intel reported that the Client Computing group’s operating margin also fell from 40% to just 30% because of its switch to next-generation chip architectures and various other investments the company has made.
Intel’s newest business unit, Datacenter and AI, which includes server chips, some kinds of accelerators, memory chips and field-programmable gate arrays, saw revenue rise 22%, to $6.03 billion. The company said that was driven by brisk demand from hyperscale data center operators such as the large cloud computing providers and large enterprises.
Constellation Research Inc.’s Holger Mueller told SiliconANGLE that Intel’s shrinking revenue was bad news for investors, highlighting its inability to participate in PC sales to such a strong degree as it has done in the past. “Good results from Intel’s other business segments could not make up the deficit, which underlines how important its IDM 2.0 strategy is to the company,” the analyst said. “But kudos to Intel for offering realistic guidance.”
Charles King of Pund-IT Inc. said Intel delivered results that were better than many analysts were expecting and that its softer guidance was justified, even if it meant disappointing many of its shareholders.
“Given the systemic supply chain issues that continue to plague many vendors, Intel’s caution seems well warranted,” King said, adding that there were still a number of positives to take away from today’s report. “The company is seeing significant growth in emerging product groups, as well as solid performance in the data center business,” he said. “Those are all reasons for cheer.”
The challenges to Intel’s business came amid a busy quarter in which the company said its next-generation Granite Rapids server chip will be released in 2024 instead of 2023. Intel also revealed plans to buy the Israeli chip foundry Tower Semiconductor Ltd. for $5.4 billion and build new chip factories in Ohio and in Germany. Finally, it hired former Micron Technology Inc. finance chief David Zinsner as its new chief financial officer.
In today’s call, Gelsinger said the company’s Sapphire Rapids server chips will be rolled out “meaningfully faster” than it was able to do with ts previous-generation Ice Lake chips in 2019. He added that every hyperscale data center operator is lining up for the new silicon.
Zinsner said that though inventory challenges will persist through the second quarter, there is light at the end of the tunnel and that they should ease by the second half of the year.
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