Intel falls after tepid forecast raises fears about return to market leadership

Shares of Intel (INTC), the largest maker of processors for personal computers, fell in late trading in New York after the company released a lackluster forecast for the current fiscal year, indicating that it is still struggling to return to being among the leaders in the chip industry.

Sales in the 2nd quarter were estimated at around US$ 13 billion, the company said in a statement this Thursday (25). Analysts’ average estimate was $13.6 billion, according to data compiled by Bloomberg. Intel’s expected profit is US$0.10 per share, against a projection of US$0.24.

The outlook signals that CEO Pat Gelsinger’s effort to revitalize Intel will take more time and money. Once the world’s dominant chipmaker, the company now lags behind rivals like Nvidia (NVDA) and Taiwan Semiconductor Manufacturing (TSM).

Intel shares fell 7.2% in stock exchange trading after the release of the report. The stock had already fallen 30% this year as of Thursday’s close, making it the second-worst performer on the Philadelphia Stock Exchange Semiconductor Index.

In Q1, the Santa Clara, California-based company had earnings of $0.18 per share on revenue of $12.7 billion. Analysts were estimating earnings of $0.13 per share and sales of $12.7 billion.

The chipmaker is reporting earnings for the first time under a new business structure, showing the financial performance of its manufacturing operations. Gelsinger said the approach is a necessary step toward making operations more efficient and competitive. Intel has also been building a foundry business to manufacture components for outside companies.

Earlier this month, the company gave investors the first look at the financial state of its factory network. It wasn’t encouraging. Spending on new factories has caused losses to widen, and Intel doesn’t expect the business to break even for several years.

Intel Foundry, the new division responsible for manufacturing, had sales of US$18.9 billion in 2023, compared to US$27.5 billion in the previous year. The unit had revenue of US$4.4 billion in the 1st quarter of 2024.

The foundry business had an operating loss of about $2.5 billion in the first quarter, larger than losses recorded in the previous quarter and a year earlier.

The company’s PC-related chip sales were $7.5 billion, compared to an average estimate of $7.4 billion. Its data center and AI division had revenue of $3 billion, in line with Wall Street projections. Network chips delivered nearly $1.4 billion in sales, surpassing an average estimate of $1.3 billion.

The gross margin — or the percentage of sales remaining after deducting the cost of production — was 45.1% in the quarter. This closely watched measure reflects the efficiency of Intel’s manufacturing operations and is estimated at 43.5% in the current fiscal year. Historically, Intel has recorded margins of over 60%.

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