Intel shares drop nearly 10% after earnings loss, executives expect quarterly losses as data center market shrinks

Shares of Intel Corp. fell more than 9% in Thursday’s extended session after the chipmaker reported a big lack for the fourth quarter, expecting a loss for the first quarter, the data center market said was contracting and that inventory digestion will eat into margins.

Intel INTC,
Executives expect an adjusted loss of 15 cents per share on revenues of approximately $10.5 billion to $11.5 billion and adjusted gross margins of approximately 39% for the current quarter. Analysts polled by FactSet had estimated first-quarter adjusted earnings of 25 cents a share on revenue of $13.93 billion.

Chief Executive Officer Pat Gelsinger told analysts on a conference call that he would not provide a forecast for 2023. Gelsinger narrowed the outlook to the current quarter, citing macro uncertainties, “difficult” to predict PC inventory digestion and a shrinking data center market. In the fourth quarter, AI Group sales fell 33% to $4.3 billion, while Street forecast revenue of $4.08 billion.

“We expect server consumption in the first quarter [total addressable market] to decline both sequentially and year-over-year at an accelerating pace, with TAM server consumption in the first half of 2023 declining year-over-year before returning to growth in the second half,” Gelsinger said.

Chief Financial Officer David Zinsner told analysts that the company will institute an accounting change in the first quarter, in which Intel will extend the useful life of its equipment to eight years from the current five years. Gelsinger said Intel would be “squeezing” its effective capacity.

While Zinsner doesn’t provide a full-year outlook, he said continued inventory management should be weighted into the first half of the year.

Pressed about how Intel could return to the 51% to 53% margin range it promised a year ago, Zinsner said a “significant inventory burn” on PC inventory would hit gross margins by 400 basis points in the first quarter. Gross margins for the fourth quarter fell to 43.8% from 55.8% a year ago and 45.9% in the third quarter.

Intel reported a fourth-quarter loss of $664 million, or 16 cents per share, versus net income of $4.62 billion, or $1.13 per share, for the same period a year ago. After adjusting for restructuring charges and other items, Intel reported earnings of 10 cents a share, compared with $1.13 a share a year ago.

Revenue fell to $14.04 billion from $20.52 billion in the year-ago quarter, for the tenth consecutive quarter of year-over-year declines.

Analysts polled by FactSet estimated earnings of 21 cents a share on revenue of $14.49 billion, based on Intel’s forecast of 20 cents a share on approximately $14-15 billion.

Intel shares fell as much as 9.8% in after-hours trading on the analyst call, after finishing the regular session up 1.3% at $30.09. Other chip stocks, hardest hit by the data center market downturn, also declined, including main rival Advanced Micro Devices Inc. AMD,
which saw the stock fall more than 3% in after-hours trading, and Nvidia Corp. NVDA,
which decreased by 2%.

Division Breakdown: Client computer sales decreased 36% to $6.6 billion from a year ago; “Network and edge” sales fell 1% to $2.1 billion; and foundry services revenues increased 30% to $319 million.

Analysts polled by FactSet had expected client computing revenue to come in at $7.36 billion; network and edge revenue of $2.23 billion; and foundry services revenue of $199.1 million.

Over the past 12 months, Intel shares are down 43%. During the same period, the Dow Jones Industrial Average DJIA,
– which counts Intel as a component – slipped 1%, the PHLX Semiconductor Index SOX,
the S&P 500 SPX index lost 13%,
fell 7% and the tech-heavy Nasdaq Composite Index COMP
fell 15%.

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