Intel’s shares took a significant hit after the company’s bleak forecast for the first quarter cast doubt on its comeback bid. The projection fell short of Wall Street’s estimates, raising concerns about Intel’s ability to regain its former dominance in the industry. While the chipmaker’s personal computer business is recovering, demand for data center chips is weakening, posing a challenge for CEO Pat Gelsinger.
Intel is not only contending with a slowdown in programmable chips and components for self-driving vehicles but also struggling to establish its fledgling business in semiconductors for other companies. These setbacks have contributed to a decline in Intel’s stock, which fell over 10% in after-hours trading following the forecast announcement.
The company’s sales for the first quarter are projected to be between $12.2 billion and $13.2 billion, significantly lower than the average analyst estimate of $14.25 billion. Similarly, the forecast for profit is 13 cents per share, minus certain items, compared to a projection of 34 cents.
During a conference call with analysts, Gelsinger acknowledged that the first quarter did not meet expectations but expressed optimism about the remainder of the year. He assured stakeholders that Intel’s efforts to restore its manufacturing capabilities and enhance product competitiveness are on track. Gelsinger also stated that the chipmaker is no longer losing sales to competitors in the personal computer and data center markets.
One of the key elements of Gelsinger’s plan is expanding into the foundry industry by manufacturing chips for other companies. Intel has committed to significant investments in plants worldwide to support this endeavor. Although the company has not disclosed the names of major customers participating in the project, they revealed orders worth $10 billion in lifetime deal value for chip manufacturing and packaging for other companies.
Gelsinger candidly admitted that the current deals in place are not sufficient and emphasized the company’s commitment to pursuing larger opportunities. The noteworthy performance of competitors like Nvidia Corp. and Advanced Micro Devices Inc. in the chip sector has made them darlings of the stock market. Investors have high expectations for these companies, particularly in relation to artificial intelligence-related infrastructure spending.
Intel aims to make headway in the market for AI accelerators and expects the growth of the AI industry to drive demand for its data center processors. However, upgrading its facilities to achieve these goals will impact profitability in the short term, with the anticipated payoff expected in the future.
Despite its challenges, Intel remains optimistic about the recovery of the PC market, which is gradually overcoming inventory issues. Gelsinger has predicted that total PC shipments will increase to around 300 million units per year, driven by demand for machines capable of handling artificial intelligence software and services. In the server market, Intel faces stiffer competition and changing spending patterns, with rival AMD gaining market share and major companies like Amazon and Microsoft designing their own processors.
Intel’s outlook has also been clouded by a division it partially spun off, Mobileye Global Inc., which recently provided a full-year forecast significantly lower than analysts’ predictions. As the majority owner of Mobileye, Intel needs to address these challenges while striving to regain its leadership position in every category it operates.
In conclusion, Intel’s bleak forecast for the first quarter has raised doubts about its comeback bid. While challenges persist in certain market segments, the company remains committed to restoring its manufacturing capabilities, expanding into the foundry industry, and capitalizing on the growing demand for AI-related infrastructure. Intel’s ability to overcome these obstacles will determine its success in reclaiming its former prowess in the semiconductor market.
