Intel Corp.’s shares dropped as much as 5 percent in Thursday night trading after it issued an outlook for the first quarter that fell short of Wall Street’s expectations. This dampened optimism about its long-awaited turnaround.
Bloomberg’s average forecast of $12.6 billion was lower than the company’s mid-point revenue estimate of $12.2 billion.
Intel said that it also expects to be profitable on a per-share basis. Analysts had projected $0.08, but Intel’s expectation is $1.
Intel’s cautious outlook was in stark contrast to its better-than feared performance during the fourth quarter. Intel exceeded expectations for earnings and revenues.
The results highlight the tension that the US chipmaker faces as it tries to strike a balance between near-term pressures for cost and longer-term investments in artificial intelligence, advanced manufacturing, etc.
AI increases results but comes at a cost
Intel’s fourth quarter earnings were $0.15 per share. This is $0.15 more than last year and $0.09 above the analysts’ expectations.
The revenue fell by 4% compared to a year ago, but was still higher than the forecast of $13.4 Billion.
Lip-Bu Tan, Chief executive officer of the company, pointed out that demand for CPUs (central processing units) used to run AI applications, and in particular data centers, is on the rise.
Tan stated in a press release that “our conviction in the crucial role of CPUs for the AI era has continued to grow”. He added that the company is aiming to improve execution, and to reinvigorate its engineering excellence in pursuit of AI opportunities in all areas.
Intel’s gross margin adjusted came out at 37.9%. This is down from 42.1% one year earlier, but still above estimates.
Even so, the margins are still under pressure, as the company continues to invest in its 18A next generation manufacturing process, as well as future nodes. These investments, which have been deemed critical for restoring competitiveness, will be crucial to its ability as a contract chips manufacturer.
Turnaround hopes face near-term headwinds
Intel is the sole large-scale US manufacturer of cutting-edge semiconductors. The federal government supports the company, which positions it as an important strategic rival to Asian manufacturers.
Nvidia’s AI-capable accelerators continue to dominate the AI market, but Advanced Micro Devices (AMD) and Arm-based chips designs are still a major competitor.
Wall Street’s sentiment towards Intel improved over the past few weeks due to a stronger demand for its traditional CPUs for data centres and excitement about its new Panther Lake chip designed for AI powered PCs.
HSBC, KeyBanc and other firms raised their rating of Intel. This helped Intel’s shares rise nearly 12% in the last month. They reached their highest levels for four years this past week.
This momentum is now under scrutiny. Intel has warned that the rising cost of memory and storage used with its processors may dampen the demand for PCs and servers built on Intel chips. This could affect profitability.
David Zinsner, Chief Financial Officer of Intel said that the company had exceeded expectations for the fourth quarter despite “navigating industry-wide shortages.” He highlighted execution improvements as well as the fragile background to growth in the AI age.
This article Intel shares fall 5% after forecasts disappoint, and chipmaker warns about margin pressure could be updated as new information becomes available.
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