Intel Shares Plunge on Disappointing Earnings Report, Weak Year Ahead Forecast

Computer chip maker Intel's logo is shown on a gaming computer display during the opening day of E3, the annual video games expo revealing the latest in gaming software and hardware in Los Angeles, Calif., on June 11, 2019. (Reuters/Mike Blake/File Photo

The stock of chip giant Intel plunged on Jan. 26 after the company reported disappointing fourth-quarter results and forecast more losses for the first quarter of 2023.

Intel’s stock price fell nearly 10 percent in extended trading after the Santa Clara, California-headquartered giant reported fourth-quarter revenue of $14 billion, down 32 percent year over year.

Market analysts had anticipated revenue of $14.4 billion for the quarter.

Meanwhile, the company reported a fourth-quarter loss of $664 million, or $0.16 a share, compared to a profit of $4.62 billion in the year-ago quarter. Wall Street analysts had been expecting a loss of $278 million. Full-year revenue wasn’t much better, at $63.1 billion, down 20 percent year over year.

Looking ahead, Intel forecasted first-quarter revenue of $10.5–11.5 billion, or an adjusted loss of $0.15 a share, down 40 percent year over year.

Intel CEO Pat Gelsinger speaks during a panel session of the World Economic Forum in Davos, Switzerland, on May 25, 2022. (Hollie Adams/Bloomberg via Getty Images)

Year Ahead Outlook Looking Dismal

Analysts surveyed by FactSet had anticipated adjusted first-quarter earnings of $0.25 a share on revenue of $13.93 billion. Just a year ago, Intel was reporting $1.13 in profit per share, marking a significant decline for the company.

Meanwhile, the gross margin for the first quarter is expected to be 34.1 percent, according to the company, down from 55.2 percent in the same quarter in 2021.

In its report to investors, CFO David Zinsner said the company aims to cut $3 billion in costs this year and “set the stage” to reduce costs by a total of $8–10 billion by the end of 2025.

The company said earlier this month that it would start making layoffs later this year as part of its cost-reduction efforts, but hasn’t said how many employees will be impacted.

Intel also acknowledged that 2022 had been a turbulent year, but still cast an optimistic note for the year ahead.

“Despite the economic and market headwinds, we continued to make good progress on our strategic transformation in the fourth quarter, including advancing our product roadmap and improving our operational structure and processes to drive efficiencies while delivering at the low-end of our guided range,” said Pat Gelsinger, Intel’s CEO.

“In 2023, we will continue to navigate the short-term challenges while striving to meet our long-term commitments, including delivering leadership products anchored on open and secure platforms, powered by at-scale manufacturing and supercharged by our incredible team,” Gelsinger added.

Intel didn’t provide full-year guidance for 2023, citing economic uncertainty.

An AMD employee presents a 200-millimetre wafer of Advanced Micro Devices (AMD), the U.S. maker of computer chips, in Dresden, eastern Germany, on Oct. 24, 2006. (Norbert Millauer/DDP/AFP via Getty Images)

Intel Has Competition

The report comes amid a slowing of the PC and server markets following a reopening of the economy after pandemic-induced lockdowns that led to a rise in remote work.

The result has left computer makers with an oversupply of chips, but fewer sales.

Gelsinger told analysts on a call (pdf) on Thursday that he expects PC sales during 2023 to be around 270–295 million units, although Zinsner noted that “given continued uncertainty and demand signals we see for the first quarter, we expect the lower end of that range as a more likely outcome.”

“Importantly, PC usage data remains strong, reinforcing that use-cases brought on by COVID are persistent even as the economy has reopened,” Gelsinger noted.

Despite a turbulent 2022, Intel still dominates the markets for PC and server processing chips, with a market share greater than 70 percent, according to calculations by tech research firm IDC. However, in 2017, Intel held a 90 percent market share.

“Someone going from 1 percent to 13 percent is significant. It tells you that now there’s a viable second competitor in the server processor market, who has momentum and is gaining momentum,” IDC analyst Shane Rau told Reuters.

That competitor is Advanced Micro Devices (AMD), according to Reuters, with market capitalization roughly the same as Intel. AMD saw its stock jump earlier this week after Barclays upgraded its shares to “overweight” from “equal weight” with a price target of $85, citing the chipmaker’s increasing lead over rival Intel.