Intel, the largest semiconductor maker by revenue, faced a sharp decline in its shares during extended trading on Thursday after the company issued a disappointing outlook for the first quarter of 2024. Despite beating Wall Street estimates for the latest quarter, Intel’s forecast for the upcoming quarter fell short of analyst expectations. The chipmaker expects earnings per share of 13 cents, far below the LSEG consensus forecast of 33 cents per share. Additionally, Intel projects sales between $12.2 billion and $13.2 billion, significantly lower than the anticipated $14.15 billion in revenue.
The weak outlook can be attributed to several factors affecting Intel’s core businesses. While PC and server chips are forecasted to remain in the low end of the company’s seasonal range, sales in subsidiaries such as Mobileye and the programmable chip unit are expected to suffer. Moreover, revenue decreases from other businesses that Intel has spun off or sold also contribute to the overall sales decline. Despite these setbacks, Intel CEO Pat Gelsinger reassures investors that they see no areas for market share loss in their core business and that their products continue to strengthen.
In terms of financial performance, Intel reported net income of $2.7 billion, equivalent to 63 cents per share. This marks a significant improvement compared to the net loss of $0.7 billion, or 16 cents per share, from the previous year. Intel’s revenue in the fourth quarter also showed growth, with a 10% increase from $14.04 billion to $15.4 billion, breaking a streak of seven consecutive quarters with declining revenue. Despite these positive indicators, Intel’s gross margin decreased by 2.6 percentage points year-on-year, standing at 40%.
Intel’s position as the largest semiconductor maker by revenue does not necessarily translate to market dominance. While its market cap puts it below Nvidia and AMD on Wall Street, Intel faces tough competition, particularly in the AI sector. Cloud providers and large tech companies have been flocking to Nvidia due to its advancements in the AI boom. In the past, Intel’s central processor was the most crucial component in servers, but now AI servers can have multiple Nvidia or AMD graphics processing units (GPUs) attached to Intel CPUs. This shift in wallet share poses a challenge to Intel’s market position.
In response to market challenges, Intel’s CEO, Pat Gelsinger, implemented a five-year plan to enhance the company’s competitiveness. The plan aims to catch up with Taiwan Semiconductor Manufacturing Company in offering manufacturing services to other companies while simultaneously improving Intel’s own branded chips. Gelsinger emphasizes that the quarter’s performance represents significant progress in Intel’s transformation.
Intel’s restructuring efforts involve various measures, including workforce reductions and divestment of certain business units. In the past year alone, the company sold off five different business lines and spun off its programmable chip unit. These actions align with Intel’s strategy of focusing on its most profitable divisions and cutting costs. In 2023, Intel reduced costs by $3 billion, demonstrating its commitment to improving efficiency and profitability.
Intel’s largest division, the Client Computing group, which includes laptop and PC processor chips, reported a 33% increase in fourth-quarter sales, totaling $8.8 billion. This growth is a positive sign for the overall PC industry, which has been sluggish for the past two years but is now showing signs of recovery. Gelsinger notes that demand for PC chips has normalized, with strong sales in the gaming and commercial sectors. Moreover, Intel expects continued expansion in the total PC market throughout the year.
On the other hand, Intel’s Data Center and AI division experienced a decline of 10%, reaching $4 billion in sales. This division comprises server CPUs and GPUs. Additionally, Intel’s Network and Edge department, responsible for selling parts to carriers and networking, reported a decrease of 24% compared to the previous year, with sales amounting to $1.5 billion.
While Intel exceeded expectations for the latest quarter, its weak outlook for the first quarter of 2024 disappointed investors and led to a decline in share value. The factors contributing to this outlook include weakness in subsidiaries, revenue decreases from divested businesses, and moderate performance in core businesses. Nevertheless, Intel remains committed to its transformation plan and is focused on enhancing its competitiveness in the semiconductor market, particularly in the AI sector. The company’s cost-cutting measures and divestments reflect its determination to optimize profitability. As Intel navigates through challenging market dynamics, it seeks to strengthen its position and generate sustainable growth in the long term.
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