Shares of Intel Corp. fell more than 10% in the after-hours session today after the company provided an outlook for its fiscal 2024 first quarter that trailed Wall Street’s expectations.

The lower guidance overshadowed a solid earnings beat, with the chipmaker posting earnings and revenue that easily surpassed the Street’s forecasts. Update: The shares fell 12% on Friday.

Intel reported earnings before certain costs such as stock compensation of 54 cents per share, well ahead of the Street’s call for 45 cents per share. Revenue for the period rose 10% from a year earlier, to $15.4 billion, beating the analysts’ call for $15.5 billion. All told, Intel reported net income of $2.7 billion for the period, up from a net loss of $700 million one year ago.

The reported sales growth helped to snap a streak of seven successive quarters in which the company had posted declining revenue, though Intel’s gross margin was down 2.6%, to just 40% at the end of the quarter.

Intel Chief Executive Pat Gelsinger (pictured) said on a conference call with analysts that the company’s core businesses, which sell chips for personal computers and data center servers, would deliver first-quarter revenue at the lower end of its seasonal range. However, he said Intel’s overall sales will likely be hit by weakness in subsidiaries such as the programmable chip unit, which is in the process of being spun off as a separate business entity.

“The core businesses we see as healthy,” Gelsinger said. “We see no areas for market share loss and the products are getting stronger.”

Looking to the first quarter, Intel called for earnings of 13 cents per share on revenue of between $12.2 billion and $13.2 billion, below the Street’s call for earnings of 33 cents per share on sales of $14.15 billion.

Despite the lower forecast, Intel has been on the up over the past 12 months. The company’s stock was up 74% over the past year prior to today’s drop, and it recently overtook Samsung Electronics Co. Ltd. as the world’s largest chipmaker by revenue, according to data from Gartner Inc. That came even as Intel’s market capitalization trails that of rivals Nvidia Corp. and Advanced Micro Devices Inc.

Nvidia’s impressive growth over the last year can be attributed to the growing excitement about artificial intelligence workloads. Previously, it was Intel’s central processing units that were the key component of any data center server, but nowadays such devices can have as many as eight of Nvidia’s graphics processing units, paired with just a couple of Intel CPUs.

On the call, Intel’s finance chief David Zinsner told analysts that the data center market has seen a big shift in wallet share between CPUs and accelerators over the last few quarters. That explains why Intel’s second-largest business unit, the Data Center and AI segment, saw revenue fall by 10% to just $4 billion in the quarter. Zinsner added that the company expects its Data Center business to post another “double-digit” revenue decline sequentially in the first quarter, compared to the fourth quarter.

The Client Computing group that accounts for PC chip sales offered a much brighter picture, with revenue growing by 33% from a year earlier to $8.8 billion in the quarter. Gelsinger said demand for PC chips has normalized, with sales especially strong in the gaming and commercial segments of that market. He told analysts that the company expects the PC market to grow in 2024.

For its part, Intel is in the middle of executing on a five-year plan implemented by Gelsinger when he took over the company in 2021. He hopes for the chipmaker to surpass Taiwan Semiconductor Manufacturing Co. as the world’s number one contract manufacturer for semiconductors, by opening its chip fabs to other companies. At the same time, it also wants to surpass the quality of TSMC’s chips.

Gelsinger said the company made “tremendous progress” in its transformation over the last year.

Despite that, the Intel Foundry Services business, which manufactures chips for other companies, is still nascent. Its revenue rose by 63% over the past year, but at just $291 million it still represents just a small fraction of the company’s overall sales.

Holger Mueller of Constellation Research Inc. said Intel remains in many ways the “sick man of Silicon Valley”, even though the fourth quarter results were promising and showed signs of growth. “Gelsinger and team are working on both sides, trying to grow revenue while reducing the cost base,” the analyst said. “But the $3 billion in annual savings across sales, marketing and R&D can affect its growth prospects, as Intel needs to innovate to compete in this industry.”

Despite the declining revenue in its data center business, Intel doesn’t appear to be losing market share, said Charles King of Pund-IT Inc. However, the company is clearly seeing headwinds within the nascent foundry business. “Given how capital intensive foundry businesses typically are, it is unsurprising that Intel foresees additional potential problems,” King explained. “That said, the cratering of Intel’s shares after the earnings announcement has all the marks of profit-taking trades. With Intel’s shares up more than 67% in the past 12 months, and the dim short-term outlook, that makes good sense.”

Like many other tech companies, Intel has implemented a string of cost-cutting measures over the last year, with workforce reductions and the offloading of several parts of its business. The plan to spin off the programmable chip business followed Mobileye’s transformation from subsidiary to independent company in 2022. According to Zinsner, Intel managed to slash its annual cost base by about $3 billion in the last year, helped by the sale of spinoffs of five of its smaller businesses.

Photo: SiliconANGLE