Intel is in a world of pain

Intel slid in late trading in the US after giving a dire forecast for the current period, hurt by sinking demand from PC customers and tough competition in the lucrative market for server hardware.

First quarter sales will be US$10.5-billion to $11.5-billion, the chip maker said in a statement late on Thursday. That compares to an average analyst estimate of $14-billion. Intel expects to lose $0.15 in the quarter, excluding some items. Analysts had projected a profit of $0.25.

At the low end of the forecast range, Intel’s revenue would be the smallest quarterly total since 2010.

The outlook reflects the myriad challenges facing Intel, which was attempting to stage a comeback even before the market for PC chips — its main source of revenue — fell into a slump.

To get back on track, the company needs computer makers to quickly work through inventory stockpiles and return to ordering components. That would provide Intel with a revenue boost needed to help shore up its finances, which were already stretched by ambitious plans to regain technological leadership within the chip industry.

Intel shares fell more than 7% in late trading following the announcement. Earlier, they closed at $30.09. The stock had gained 14% this year, part of a rally for chip equities.

The chip maker also has been cutting costs to cope with the slowdown. Three months ago, Intel said that headcount reductions, slower spending on new plants and other belt-tightening moves will result in savings of $3-billion this year. That figure will swell to much as $10-billion annually by the end of 2025, the company said.

Net loss

In the fourth quarter, Intel posted a net loss of $664-million, down from a profit in the same period a year ago. Revenue dropped 32% to $14-billion, hitting its lowest level since 2016.

Excluding certain items, profit was $0.10/share. Wall Street was looking for a profit of $0.19 on sales of $14.5-billion.

The grim results show Intel falling further behind rivals. Its 2022 revenue total was lower than that of TSMC, a chip maker that supplies many of the US company’s competitors and enables some customers to design their own components. Already, the once-dominant Intel had fallen behind Samsung Electronics in sales.

Read: Intel splits graphic chips unit into two

The computer industry is undergoing a giant reset in the aftermath of a sales surge fuelled by the work-from-home trend. PC shipments sank 16% in 2022 and will decline again to as little as 260 million this year, according to an estimate by Northland Securities analyst Gus Richard. That’s down from nearly 350 million in 2021.

Read: Intel claims it’s on course to regain chip-making prowess

Intel still dominates the market for processors used in servers, with a share of more than 70%. But its hold on that lucrative market has slipped. The company was slow to introduce new products in recent years, and rivals such as AMD made gains. Some customers also are developing in-house chips to replace Intel processors.

That’s all brought a painful comedown for Intel, which once controlled 99% of the market.  — (c) 2023 Bloomberg LP

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