Intel crashes on Wall Street after the publication of the results for the fourth quarter of 2022 and a rather disappointing outlook for the first quarter of 2023. The title sinks by 7.5% to 27.84 dollars, erasing much of the gains it had accumulated year-to-date amid a rally in chip stocks. Below are the details on the accounts, the guidance and the opinions of the analysts.
Revenue and Adjusted EPS below expectations in 4Q
In the fourth quarter of 2022 Intel made revenues of $14.04 billion, below the estimated $14.5 billion in revenuesmarking a 32% year-on-year decline.
For Intel, this is the fourth consecutive quarter of decline in revenue, in a context of slowdown in the PC market after the boom marked during the darkest period of the Covid pandemic, when lockdowns and stay-at-home restriction measures led consumers to increase PC spending, supporting demand for Intel chips.
Sales in the Client Computing (down 36% to 6.63 billion vs 7.42 expected) and Network & Edge (2.06 billion vs 2.21 billion) segments were lower than expected, while data center units performed better than expected and AI (4.30 billion vs 4.05 expected, but down 33%) and Accelerated Computing Systems & Graphics (247 million vs 203.4), as well as Mobileye (565 million vs 435.1) and Intel Foundry Services (319 million vs 191.5).
Adjusted gross margin stood at 43.8% (45% estimate), while adjusted operating margin was 4.3% (7.22% consensus). The quarter ended with a net loss of $664 million, compared to earnings of $4.62 billion in the same period of 2021. Adjusted EPS came in at 10 cents versus an estimate of $0.19.
Gloomy forecasts for 1Q 2023
In the first quarter of this year, Intel expects an adjusted net loss of 15 cents per share, the first loss estimate in decades.
Il turnover is expected to be between 10.5 and 11.5 billion dollars. The company also estimates a drop in gross margin, the percentage of sales remaining after deducting manufacturing costs, to 39%. The forecast implies a drop of 14.1 points compared to the same period a year ago and more than 10 points less than that of Intel’s closest rival, AMD.
The data compares with the expectations of analysts who signaled a net profit of 25 cents, revenues of 13.96 billion and a gross margin of 45.5% in the first quarter of the year.
However, the company remains committed to offering a competitive dividend, Chief Financial Officer Dave Zinsner said.
The view of the CEO of Intel
Intel CEO Pat Gelsinger, in office since 2021 to relaunch the company, said: ” “Clearly, the financial results are not what we hoped for”, recalling however that “we are in the course of a multi-year journey. We will continue to address short-term challenges as we strive to meet our long-term commitments.”
According to Gelsinger’s plan, Intel aims to accelerate the introduction of new manufacturing technologies, increasing it at a rate never before attempted in semiconductors. The company also has plans to build new factories in the United States and Europeshifting the concentration of production away from Asia.
Gelsinger is attempting to transform Intel into more than a contract manufacturer, outsourcing work to other companies and taking on giant Taiwan Semiconductor Manufacturing Co.
To get back on track, however, the company needs computer makers to quickly clear inventory and get back to ordering components. This would ease the strain on Intel’s finances, strained by ambitious plans to upgrade manufacturing technology.
Gelsinger expects PC sales of between 270 million and 295 million this year, well below the million units per day he had announced in 2021. To address this market slowdown, Intel has already announced a cost cut. Three months ago, he said job cuts, slower spending on new facilities and other restrictive measures will result in $3 billion in savings this year. That figure will rise to $10 billion annually by the end of 2025.
Analysts negatively surprised by Intel’s outlook
The latest results and prospects are “very weak” according to Wells Fargo, which also underlines the lack of forecasts for the full year, further increasing the uncertainty.
Morgan Stanley also says “the extent of the weakness in guidance is quite surprising,” despite a weak earnings outlook in the air.
Fitch emphasizes the fact that regaining market share and bringing profit margins back to the average 50% range “will be no mean feat”.
Several brokers have lowered their target prices on the title in the wake of accounts and prospects below expectations. Among these Bernstein (underperform), which cut the target price from 23 to 20 dollars, JP Morgan (underweight) from 32 to 28 dollars, Credit Suisse (neutral) from 28 to 25 dollars.
Intel remains one step behind its peers
Intel’s disappointing results underscore its gap with rivals. The Total revenue in 2022 was lower than that of TSMC, the Taiwanese chip maker that supplies many of Intel’s competitors and allows some customers to design their own components. But Intel, once dominant, remained behind even Samsung Electronics in terms of sales.
The computer industry is undergoing a reset after the pandemic boom. PC shipments fell 16% in 2022 and will drop again to just 260 million this year from nearly 350 million in 2021.
Intel still dominates the market for processors used in servers, with a share of more than 70%. But its grip on this market has evaporated. Indeed, in recent years, the company has been slow to introduce new products and rivals such as AMD have gained ground. Also, some customers are developing in-house chips to replace Intel processors.