Intel gives dour forecast; CEO says Q3 is ‘bottom’

Sat, Jul 30, 2022 page10

Intel gives dour forecast; CEO says Q3 is ‘bottom’
- Bloomberg
Intel Corp CEO Pat Gelsinger slashed sales and profit forecasts for the rest of the year, conceding that the struggling chipmaker needs more time to make its products competitive while assuring investors that this quarter would be the nadir.
The company, which in April reiterated its annual sales forecast, reported steeply lower second-quarter results and said revenue would this year be as much as US$11 billion less than projected, buffeted by a slackening economy and a share loss in the server market.
“It feels like they’re clearing out a lot of the bad news,” said Matt Bryson, an analyst at Wedbush Securities, adding that Intel should have cut projections several quarters earlier.

Intel Corp CEO Pat Gelsinger attends a World Economic Forum session in Davos, Switzerland, on May 25.

Photo: EPA-EFE

“If you believe in Intel, you believe in Intel in 2024, or 2025 or 2026,” he added.
The company’s shares tumbled as much as 12 percent in late trading after it gave disappointing sales and profit estimates for this quarter and reduced forecasts for the year.

Annual revenue would be as low as US$65 billion, the company said.
That would be a decline of as much as 13 percent from last year.
While investors had anticipated that a PC slump would weigh on Intel’s second-quarter performance, an unexpected 16 percent drop in revenue from expensive server chips that power data centers dragged down overall sales and profit.
Prices are falling and customers have been turning to rival providers for their orders, Intel said.
The majority of Intel’s shortfall was caused by a slowdown in the economy, but the company’s failure to produce better products on time also contributed to the miss, Gelsinger said.
This quarter would be the low point for Intel’s performance, he said, adding that many of its customers are working through unused stockpiles of chips and have not placed new orders, but would soon need to resume those purchases.
“We feel very confident that it’s the bottom,” Gelsinger said in an interview.
On Thursday, Gelsinger said a delayed server product this quarter hurt Intel, a result of the legacy of projects begun before he rejoined the company last year.
In the second quarter, revenue fell 22 percent to US$15.3 billion, significantly below the average analyst estimate of US$18 billion.
Profit per share excluding some items was US$0.29, Intel said, while analysts had predicted US$0.69.
Sales would this quarter be as low as US$15 billion, compared with projections of $18.7 billion, and gross margin would narrow to 47 percent, Intel said.
Gelsinger said he is not backing off a plan to spend heavily on improving Intel’s manufacturing technology.
The “austerity” of the decline in the economy and Intel’s performance would help the company place its big bets more strategically, while cutting back on areas that are not key to its future, he said.
Second-quarter sales for Intel’s data center division, which generates an outsize portion of profit, slid to US$4.6 billion, missing the average analyst estimate of US$6.04 billion.
The company expects its data center business to grow more slowly than the overall server market this year, Gelsinger said.
Client computing, Intel’s PC chip unit, saw sales plummet 25 percent to US$7.7 billion, compared with an average projection of US$8.76 billion.
The company’s new target for this year’s revenue is US$65 billion to US$68 billion.
Intel said that gross margin would be 49 percent this year, 9.1 points narrower than a year earlier and 3 points shy of what the company had targeted.
That metric of profitability, once touted as an indication of Intel’s strength, is being squeezed by increasing competition and is now more than 10 points narrower than the company’s annual gross margins for much of the past decade.
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