Intel tumbles as investments weigh on profit forecast
INTEL Corp. shares fell on Thursday after the company gave a disappointing profit forecast, fueling concern that Chief Executive Officer Pat Gelsinger’s costly turnaround plan will weigh heavily on the chipmaker’s financial performance.
Earnings will be 80 cents a share in the first quarter, excluding some items, Intel said Wednesday. Analysts projected 86 cents a share on average. Gross margins also are tightening at Intel, once one of the most profitable companies in the industry.
Shares of the Santa Clara, California-based company fell as much as 7.4 percent in intraday trading in New York. Before the report, the stock had been outperforming those of its chip peers this year.
Though demand for server chips is helping bolster sales, the forecast adds evidence that profit is suffering from an Intel spending spree. Gelsinger, who took the helm last year, has embarked on an ambitious plan to overhaul Intel’s manufacturing. That includes a new factory hub in Ohio announced last week that could cost $20 billion. The hope is to restore Intel’s technological edge and head off a growing challenge from Asian rivals.
“This is a big investment cycle for us as a company. It is the right one for Intel, it is a critical one for our industry and for our nation,” Gelsinger said in an interview with Bloomberg TV. “At some point, the Street will see we are doing exactly what we say.”
The company’s leadership faced a series of questions about its profit margins on a conference call with analysts. Participants sought assurances that Intel is on a path to restoring the measure to historical levels above 60 percent. Gelsinger and new Chief Financial
Officer Dave Zinsner reiterated that—while the company is currently spending heavily on new capacity and improving its production technology—the investment will pay off and eventually restore margins.
Intel’s finance chief said he’s confident the company can deliver a gross margin—the percentage of revenue remaining after deducting costs of production—in the 51 percent-to-53 percent range this year. And within five years, the measure will be back up to historical levels, Gelsinger said.
Investors have punished chip stocks this year, fearing the companies’ pandemic boom is ending. But Intel has been largely spared their wrath. As of Wednesday’s close, it was one of only two stocks on the Philadelphia Stock Exchange Semiconductor Index to post gains in 2022, along with the American depositary receipts of Taiwan Semiconductor Manufacturing Co.
Intel’s CEO also was asked whether he might consider selling off a portion of the company’s programmable chip unit, a division based on its 2015 acquisition of Altera Corp. Gelsinger answered that another spinoff already underway—of its Mobileye selfdriving business—may serve as a model for other such deals.
Intel’s leader has only been in place a year, meaning he’s still dealing with products and strategy shaped by his predecessors. Still, investors want to see evidence that his initiatives will help reverse market-share losses and slowing sales. Gelsinger, 60, has argued that products launched in January have already restored Intel’s edge over rival Advanced Micro Devices Inc. But analysts are still projecting that his company’s revenue will be flat in 2022, while AMD’S sales will grow 20 percent.