Intel Shares Drop as First Quarter 2024 Outlook Falls Short of Expectations

Intel, the largest semiconductor maker by revenue, experienced a drop in its shares during extended trading on Thursday. The chipmaker’s outlook for the first quarter of 2024 failed to meet analyst forecasts, despite posting better-than-expected results for the latest quarter. This article will analyze Intel’s performance, highlighting key financial figures, discussing CEO Pat Gelsinger’s comments, addressing market trends, and exploring Intel’s strategies.

Intel reported earnings per share of 54 cents (adjusted), exceeding the expected 45 cents, for the quarter ended in December 2023. The company’s revenue also surpassed estimates, reaching $15.4 billion compared to the expected $15.15 billion. However, Intel’s first-quarter outlook for fiscal 2024 disappointed investors, with projected earnings per share of 13 cents on sales ranging from $12.2 billion to $13.2 billion. This fell short of LSEG expectations of 33 cents per share on $14.15 billion of revenue.

Intel’s CEO, Pat Gelsinger, stated during a call with analysts that while the core businesses, primarily PC and server chips, were performing at the low end of the company’s seasonal range, its overall sales would be affected by weakness in subsidiaries such as Mobileye and its programmable chip unit. Additionally, revenue declines from other businesses that Intel has spun off or sold further contributed to the projected sales decrease. Gelsinger expressed confidence in the health of the core business, stressing that there were no indications of market share loss and the products were becoming stronger.

Despite the disappointing outlook, Intel’s latest financial report showcased significant progress. The company achieved a net income of $2.7 billion, or 63 cents per share, compared to a net loss of $0.7 billion, or 16 cents per share, in the previous year. This impressive improvement came alongside a 10% sales growth in the fourth quarter, amounting to $14.04 billion, breaking a streak of seven quarters with declining revenue. However, Intel’s gross margin declined by 2.6 percentage points year-on-year, standing at 40%.

While Intel remains the largest semiconductor maker by revenue, competitors like Nvidia and AMD have surpassed it in terms of market capitalization. The rise of cloud providers and large tech companies focusing on the AI boom contributed to Nvidia’s strong performance. Whereas AI servers previously relied heavily on Intel’s central processors, modern servers now integrate multiple Nvidia or AMD graphics processing units alongside Intel CPUs. Intel’s CFO, David Zinsner, acknowledged this shift in wallet share between CPUs and accelerators in the data center market.

Intel continues to refocus its efforts under the leadership of CEO Pat Gelsinger, with a five-year plan aimed at catching up with Taiwan Semiconductor Manufacturing Company in terms of manufacturing services offered to other companies. Simultaneously, Intel aims to enhance its own branded chips. Gelsinger emphasized that the past year marked remarkable progress in Intel’s transformation.

As part of its ongoing transformation, Intel announced that it would restate past results to account for costs related to internal manufacturing of its own chips. Furthermore, Intel Foundry Services, the company’s business specialized in manufacturing chips for other companies, exhibited promising growth with a 63% increase in revenue, reaching $291 million.

Intel implemented various cost-cutting strategies, including workforce reductions and divesting small parts of its business. In 2022, the company spun off its programmable chip unit and turned its self-driving car subsidiary, Mobileye, into an independent company. In total, Intel has sold or spun off five different business lines. Last year, the company successfully reduced costs by $3 billion.

Intel’s largest division, the Client Computing group, which encompasses laptop and PC processor chips, reported sales of $8.8 billion in the fourth quarter, a 33% increase. Gelsinger mentioned that demand for PC chips had “normalized” and highlighted strong sales in the gaming and commercial sectors, predicting expansion in the total PC market for the current year. Conversely, Intel’s Data Center and AI division experienced a 10% decline in sales, amounting to $4 billion. This division contributes to server CPUs and GPUs. Intel’s Network and Edge department, catering to carriers and networking, reported sales of $1.5 billion, down by 24% from the previous year. Zinsner mentioned that Intel expected double-digit sequential declines in the Data Center business during the first quarter.

Intel’s latest financial report showcased both positive and negative aspects. While the company exceeded expectations for the previous quarter, its first quarter outlook fell short, resulting in a drop in share prices. Intel faces challenges in a market where AI accelerators are gaining prominence, shifting wallet share from traditional CPUs. However, the company’s transformation strategies, focus on improved manufacturing services, and strong performance in the PC market provide a degree of optimism for the future.

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