Intel CEO Pat Gelsinger, along with US President Joe Biden (not pictured), announced the tech company’s plans to build a $20 billion factory in Ohio, from the South Auditor Court on the White House grounds in Washington, January 21, 2022.
Jonathan Ernst | Reuters
by Intel December earnings show significant decline in the company’s sales, profit, gross margin, and outlook, both for the quarter and for the full year.
Investors hated it, sending shares down more than 9% in extended trading, despite the fact that Intel didn’t cut its dividend.
The earnings report, the eighth under CEO Pat Gelsinger’s leadership, reveals a legendary tech company struggling with many factors beyond its control, including the slumping PC market. deeply reduced. It also highlights some of Intel’s current problems with weak demand for current products and inefficient internal performance, and highlights how precarious the company’s finances have become. any.
“Clearly the financial situation is not what we expected,” Gelsinger told analysts.
Bottom line: Intel has had a tough 2022, and 2023 will be just as difficult.
Here are some of the most interesting takeaways from Intel’s earnings report and analyst call:
Weak and uncertain guide
Intel did not release full-year guidance for 2023, citing economic uncertainty.
But the data points for the current quarter suggest tough times. Intel guided revenue of about $11 billion in the March quarter, which would be a 40% year-over-year decline. Gross margin will be 34.1%, down greatly from 55.2% in the same quarter of 2021, the first time Gelsinger led.
But the biggest problem for investors is that Intel has guided a loss of 15 cents non-GAAP per share, a huge drop for a company that a year ago reported a profit of $1.13. per share. This would be the first loss per share since last summer, the company’s first loss in decades.
Excess inventory
Management has offered a number of reasons for the difficult upcoming quarter, but one theme that has come up is that their customers simply have too many chips and need to deal with inventory, so they will don’t buy many new chips.
Both the PC and server markets have slowed down after two years of booms driven by remote work and schools during the pandemic. Now, PC sales have slowed and computer makers have too many chips. Gelsinger predicts PC sales for the year will be in the range of 270 million to 295 million – a far cry from the “million units per day” he said. forecast in 2021.
Now, Intel customers have to “digest” the chips they already have or “repair” their inventory, and the company doesn’t know when this momentum will return.
“While we know this dynamic will reverse, predicting when is difficult,” Gelsinger told analysts.
Gross profit margin decreased
The basis of all of this is that Intel’s gross margin continues to decline, affecting the company’s profitability. One issue is “factory load,” or how efficiently plants operate around the clock. Intel said its gross margin will suffer 400 basis points, or 4 percentage points, as factories operate under load due to weak demand.
Finally, Intel forecasts a gross margin of 34.1% for the current quarter — a far cry from the 51% to 53% target the company set at last year’s investor day. The company said it is working on the matter and that profits could return to Intel’s target “in the medium term” if demand recovers.
“We have a number of initiatives underway to improve gross margin and we’re doing well. When you look at the $3 billion drop [in costs] that we talked about for 2023, 1 billion of which is cost of goods sold, and we are well on our way to that billion dollars,” said Gelsinger.
Not bad news: Dividends and self-driving cars
Long-term investors keep a close eye on how the company balances the short-term need to appease shareholders with the massive capital outlays needed to stay competitive in the semiconductor business. guide.
If Intel is cutting costs and still needs to invest in chip factories to accelerate its turnaround, analysts say it may want to reconsider its dividend. Intel spent $6 billion on dividends in 2022, but didn’t cut the dividend on Thursday.
Meanwhile, the company has said it wants to cut costs by $3 billion by 2023, and analysts believe it wants to spend about $20 billion in capital expenditures on building its plants.
Gelsinger was asked about the move on Thursday.
“I just want to say that the board, the management, we take a very disciplined approach to our capital allocation strategy and we will continue to commit to being very cautious about how we allocate capital to owners and we are committed to keeping dividends competitive,” replied Gelsinger.
There was at least one bright spot for Intel on Thursday.
mobileIts self-driving subsidiary went public in the December quarter, reported earlier in the day, showing adjusted earnings per share was 27 cents and revenue growth was 59% to $656 million. It also forecasts strong revenue in 2023 between $2.19 billion and $2.28 billion. Shares were up nearly 6% during regular trading hours on Thursday.
