Intel, the largest semiconductor maker by revenue, experienced a drop in its shares during extended trading after the chipmaker issued a disappointing outlook for the first quarter of 2024. The company’s earnings per share for the latest quarter exceeded Wall Street estimates, but its forecast for the upcoming quarter fell short of analyst expectations.
For the quarter ended in December, Intel reported adjusted earnings per share of 54 cents, surpassing the consensus estimate of 45 cents. The company also beat revenue expectations, with $15.4 billion compared to the projected $15.15 billion. However, Intel’s outlook for the first quarter of fiscal 2024 disappointed investors. The chipmaker expects earnings per share of 13 cents on sales between $12.2 billion and $13.2 billion, while analysts had anticipated 33 cents per share on $14.15 billion in revenue.
During a call with analysts, Intel CEO Pat Gelsinger attributed the weaker outlook to several factors. While the core businesses of PC and server chips were expected to remain in the low end of the company’s seasonal range for the current quarter, other subsidiaries, such as Mobileye and the programmable chip unit, were experiencing weakness. Additionally, revenue decreases from businesses that Intel has spun off or sold also contributed to the overall decline.
Despite these challenges, Gelsinger emphasized that the core business was healthy and there were no concerns regarding market share loss. He expressed confidence in the strength of Intel’s products, stating that they were becoming even stronger. With net income of $2.7 billion, or 63 cents per share, compared to a net loss of $0.7 billion, or 16 cents per share, in the previous year, Intel demonstrated a significant improvement and broke a streak of seven quarters with declining revenue.
While Intel remains the leader in terms of revenue, its market capitalization falls behind competitors like Nvidia and AMD. Cloud providers and large tech companies, who are key buyers in the industry, have increasingly focused on the AI boom, which has resulted in Nvidia outperforming Intel. In the past, Intel’s central processors were crucial components in servers. However, the landscape has shifted, and AI servers now feature multiple Nvidia or AMD graphics processing units (GPUs) in addition to Intel CPUs. The rise of accelerators in data centers has led to a shift in wallet share between CPUs and accelerators.
Under the leadership of CEO Pat Gelsinger, Intel has been implementing a five-year plan focused on catching up to Taiwan Semiconductor Manufacturing Company in terms of manufacturing services for other companies while also improving its own branded chips. The company aims to offer competitive manufacturing services while enhancing the quality of its own chips.
Intel’s progress in transforming its business has been substantial, with the fourth quarter of 2023 marking a year of tremendous advancement. As part of its transformation efforts, Intel will restate past results to include costs related to internal manufacturing of its own chips. The company’s business unit, Intel Foundry Services, which manufactures chips for other companies, has shown promise with a 63% annual increase in revenue, amounting to $291 million.
Intel’s largest division, Client Computing, which includes laptop and PC processor chips, experienced a significant increase in sales during the fourth quarter, reaching $8.8 billion, a 33% growth compared to the previous year. The PC industry, which had been in a slump for two years, has recently shown signs of growth, and Intel expects the overall PC market to expand further in the coming year. Gelsinger stated that demand for PC chips had normalized, particularly in the gaming and commercial sectors.
In contrast, Intel’s Data Center and AI division saw a 10% decline in sales to $4 billion. This unit comprises server CPUs and GPUs. The Network and Edge department, which sells parts for carriers and networking, reported $1.5 billion in sales, down 24% from the previous year. Intel anticipates a double-digit decline in its Data Center business for the first quarter of 2024, compared to the previous quarter.
Despite Intel’s positive results for the fourth quarter of 2023, the company’s disappointing outlook for the first quarter of 2024 led to a drop in its shares. Various factors, such as weakness in subsidiaries and revenue decreases from divested businesses, contributed to the decline. Intel’s leadership is focused on driving the company’s transformation, catching up to competitors in the semiconductor industry, and strengthening its core businesses. While challenges remain, Intel aims to position itself for long-term success through its strategic initiatives and commitment to innovation.
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