Intel Corp (INTC.O) said on Thursday it expects to suffer a loss in the current quarter, shocking investors with a grimmer-than-expected outlook for both the PC market and weakening growth in its key data center division.
The company’s shares lost 9.5 percent in trading after the bell.
“We stumbled, right, we lost share, and we lost momentum. We think that stabilizes this year,” Chief Executive Pat Gelsinger told investors on a conference call. He said Intel has been losing market share in the data center market, a sign of the strength of rival Advanced Micro Devices (AMD.O)
Two of Intel’s most significant markets are displaying weakness after two years of robust growth as remote work increased during the pandemic. Now, the PC industry is struggling with an oversupply of chips after demand for consumer electronics plummeted and business customers cautious of a recession are reducing spending on data centers.
Gelsinger told Reuters that customers also were emptying inventory.
“We expect some of the largest inventory corrections literally that we’ve ever seen in the industry taking place that’s affecting the Q1 guide in a meaningful way,” he said.
“Everything hinges on the PC market recovery. AMD isn’t immune to this either,” said Wayne Lam, an analyst at CCS Insight. “Don’t think we’ve seen the bottom for INTC…They are not running a sustainable business model.”
Intel predicts profit margins to drop further after falling from 58.4% in the last quarter of 2020 to 43.8% in the last quarter of last year. “It’s safe to say that ambitions to return to a 60% margin in the future is light years away,” said CFRA Research analyst Angelo Zino.
Intel restated its medium-term goal of 51-53% gross margin, and 54-58% longer term.
Shares of other microchip firms plunged as well, with AMD falling 2.6% and Nvidia Corp (NVDA.O) slipping 2%.
PC shipments declined 16.5% to 292.3 million units in 2022, based on data from research firm IDC, pushing chipmakers to reduce production and lower revenue forecasts.
Falling PC demand also pressured Microsoft Corp’s (MSFT.O) More Personal Computing segment, which includes Windows, devices, and search revenue, resulting in a 19% slump in the segment in its second quarter. In the meantime, the data center market has also weakened from double-digit growth as businesses slash costs to weather an economic slowdown.
Buy Bitcoin NowAfter Gelsinger returned to the firm almost two years ago, Intel has concentrated on regaining the lead in chipmaking technology. Outsourcing the chipmaking process has helped competitors like AMD make much smaller and faster chips and outclass Intel’s technology.
The company projected first-quarter revenue in the range of about $10.5 billion to $11.5 billion. Analysts on average were forecasting total revenue of $13.93 billion, Refinitiv data showed. The company expects an adjusted loss of 15 cents per share compared to estimates of a 24 cents per share profit.
Revenue in the last quarter dropped 32% to $14 billion. Analysts on average projected revenue of $14.46 billion.
