Intel, one of the biggest US chipmakers, stunned Wall Street with dismal earnings forecasts, stoking fears of a slump in the personal computer market.
The company predicted a surprise loss for the first quarter and its revenue forecast came in at $3 billion, which was below estimates, as it also faces slowing growth in the data center business.
Intel shares are down about 8% and along with rivals Advanced Micro Devices (AMD), Nvidia, Applied Materials and Qualcomm lost nearly $15 billion in market value on Friday, though some of them have rallied. to losses and are already registering increases.
Intel supplier KLA Corp is down around 5% after its own dismal forecasts.
“There are no words to describe or explain Intel’s historic collapse,” said Hans Mosesmann of Rosenblatt Securities, one of 21 analysts who cut their price targets.
The effort of a new leader does not work
It’s a painful admission for a company that has been attempting a multi-year comeback under CEO Pat Gelsinger, who took over in 2021. A post-pandemic downturn for Intel’s core business, PC chips, has torpedoed efforts to improve the company’s financial performance. Instead, it’s just losing more ground.
To get back on track, the company needs computer makers to quickly work through inventory stocks and reorder components. That would help Intel shore up its finances, which were already on the verge of ambitious plans to upgrade its technology.
Intel has been cutting costs to cope with the slowdown. Three months ago, he said that headcount reductions, slower spending on new plants and other belt-tightening measures will deliver $3 billion in savings this year. That figure will rise to $10 billion annually by the end of 2025, the company said.
Under Gelsinger’s plan, Intel aims to accelerate the introduction of new manufacturing technology, ramping it up at a rate never before attempted in semiconductors. It also plans to build factories in the US and Europe, shifting the concentration of production away from Asia.
And Gelsinger seeks to turn Intel into a contract manufacturer, handling outsourced work for other companies and challenging Taiwan Semiconductor Manufacturing.
A difficult situation to digest for a company that dominated the market
The high cost of making all those dreams come true was a concern for analysts and investors even before the last recession.
Intel is expected to get government assistance to help finance the expansion of the factory, and its cost-cutting plan will help. But regaining market share and returning its once-enviable profit margins to the mid-50% range is “a major effort,” Jason Pompeii, an analyst at Fitch Ratings, said in a note.
The company, which once dominated the industry with an iron fist, has continued to lose market share to rivals such as AMD, which has turned to contract chipmakers such as Taiwan’s TSMC to produce chips that outperform its technology.
According to Matt Wegner, an analyst at YipitData, “AMD’s Genoa and Bergamo (for data center) chips have a big price-performance advantage over Intel’s Sapphire Rapids processors, which should drive further share gains.” from AMD”.
“It is now clear why Intel needs to cut so much cost, as the company’s original plans turn out to be fanciful,” said the Bernstein brokerage. “The magnitude of the impairment is staggering, bringing potential concern to the company’s cash position over time.”
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Note prepared with information from Reuters and Forbes
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