Intel beats but offers disappointing guidance

Intel shares fell 4% in extended trading on Thursday after the chipmaker issued a lower-than-expected forecast for its fiscal second quarter.

Here’s how the company did:

• Earnings: 87 cents per share, adjusted, vs. 81 cents as expected by analysts, according to Refinitiv.
• Revenue: $18.35 billion, vs. $18.31 billion as expected by analysts, according to Refinitiv.

Intel’s revenue decreased by 7% year over year in the quarter that ended on April 2, according to a statement. Intel’s gross margin narrowed to 50.4% from 55.2%. The fiscal quarter had 14 weeks.

“We expect the industry will continue to see challenges until at least 2024 in areas like capacity and tool availability,” Intel CEO Pat Gelsinger told analysts on a conference call.

Intel’s Client Computing Group, which includes PC chips, produced $9.29 billion in revenue, down 13% and below the $9.42 billion consensus estimate among analysts surveyed by Refinitiv. Research firm Gartner had estimated that PC shipments fell 6.8% during the quarter, and on Tuesday Microsoft said it saw strength in the business PC market, boosting Windows license sales from device makers.

Sales of Intel chips for desktop PCs and notebooks declined, with softer demand among consumers and in education and Apple shifting to its own PC processors. It didn’t help that device makers have been lowering their inventories to match demand and align with other components.

The segment’s operating margin fell to 30% from 40%. Management said operating income fell because of its switch to next-generation chip architectures and investments to execute on its roadmap.

Intel revamped its reporting structure in the quarter and revealed a segment called Datacenter and AI, which includes chips, certain accelerators, memory and field-programmable gate arrays. Revenue from the segment jumped 22% to $6.03 billion. The company cited brisk demand from operators of large-scale data centers and enterprises.

In the quarter Intel said a server chip codenamed Granite Rapids will come out in 2024 instead of 2023. The company said it would buy foundry company Tower Semiconductor and announced plans for chip factories in Germany and Ohio. Former Micron finance chief David Zinsner became Intel’s finance chief, replacing George Davis, who held the position for three years.

With respect to guidance, Intel called for adjusted second quarter-earnings per share of 70 cents and $18.0 billion in revenue. Analysts polled by Refinitiv had expected 83 cents in adjusted earnings per share on $18.38 billion in revenue.

For the full fiscal year, Intel lifted its adjusted earnings guidance by 10 cents to $3.60 per share on $76 billion in revenue. Analysts polled by Refinitiv had been looking for adjusted earnings of $3.50 per share and $75.78 billion in revenue.

Inventory challenges should persist in the second quarter but ease up in the second half of the year, Zinsner said. Covid lockdowns in China are ratcheting up supply fears, and inflation could reduce the PC market in the full year, Zinsner said.

Intel’s objective is to bring out its server chips codenamed Sapphire Rapids “meaningfully faster” than it ramped up chips carrying the Ice Lake codename that became avialable in 2019, Gelsinger said. Every hyper-scale data center company has lined up for it, he said.

Notwithstanding the after-hours move, Intel shares have fallen about 9% since the start of 2021, while the S&P 500 is down about 10% over the same period.

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