Today's Edition
(Bloomberg)
Intel Corp. shares surged after the chipmaker gave a revenue forecast slightly above estimates, sparking optimism that it’s capable of reclaiming some lost market share.
Fourth-quarter revenue will be $13.3 billion to $14.3 billion, the Santa Clara, California-based company said in a statement on Thursday. That compares with the $13.6 billion analysts estimated on average. The firm is projecting a profit of 12 cents per share compared with the 6 cents Wall Street was expecting.
The company gained as much as 7.3% after markets opened in New York on Friday. The shares were down 57% through Thursday’s close.
Intel, once the industry leader in computer processors, is now working to preserve cash to fund a turnaround plan - one Chief Executive Officer Pat Gelsinger called the "most audacious rebuilding plan” in corporate history in an interview with Bloomberg.
In the prior quarter, Intel cut jobs, slashed spending, and suspended investor payouts. The total headcount reduction will be 16,500. Now, Gelsinger needs to show that he can counterbalance the cash drain by generating new orders from customers.
"This was a critical period of time for the company,” Gelsinger said in the interview. "We got a lot done.”
The fall from investor favour for what was once the world’s largest chipmaker underlines a major shift in the semiconductor industry in favour of artificial intelligence hardware. Companies are spending on computers built around accelerator chips for AI, an area where Intel’s offerings have barely made a dent. Instead, customers are fleeing for Nvidia Corp, fueling its massive rise.
Orders for Intel’s AI accelerator chip, Gaudi, have been weaker than projected, and it won’t now reach the company’s $500 million revenue target this year, Gelsinger said on the post-earnings call with investors. Rival Advanced Micro Devices Inc. earlier this week increased its forecast for a similar product to more than $5 billion. Nvidia is on course to have revenue of more than $100 billion from its AI chip unit this year, according to analysts.
Intel’s decline in value has made it attractive to potential acquirers in various break-up scenarios, according to reporting by Bloomberg and other news organisations. Gelsinger has said some of the business units he thinks are undervalued will seek outside investors or look to sell shares to the public.
Gelsinger said he intends to keep the company together and has the support of the board for his plan. He has a "lot of energy and passion” to bring to that effort, he said.
"Obviously, there’s a lot of attention on Intel which just reinforces what a central role it plays in the technology industry,” he said in the interview. "We believe distinct but better together is the strategy.”
The company is in negotiations with potential investors for its Altera programmable chip unit. It expects to conclude that process early next year, Gelsinger said on a call with investors. Meanwhile, he’s reviewing options for similar actions for other parts of Intel’s business.
Intel’s leader was one of the chief lobbyists for the Chips and Science Act, a Biden administration industrial policy aimed at bringing back chip manufacturing to the US with tens of billions of dollars in public money support.
Gelsinger, in an interview with Bloomberg Television, said that Intel hasn’t yet received any of the funds to help with construction of new facilities in Arizona and Ohio, and criticised the speed at which support has been made available.
Still, he remains confident that, regardless of who wins the US presidential election, the initiative will continue. "The Chips Act was a bipartisan act with strong support from both sides of the aisle,” he said.
The company is also under siege in its traditional stronghold of selling processors for servers and personal computers. For decades, its superior manufacturing made its chips the market leader and locked down an improbably high market share. Since losing its lead in process technology to rival Taiwan Semiconductor Manufacturing Co., others such as Nvidia and AMD have been able to field competitive chips made by the provider of outsourced production.
Gelsinger’s expensive plans to take back leadership in that crucial area involve a new factory network that he plans to fill with orders from other chipmakers, in addition to Intel’s own designs. In the interim, Intel is facing depressed revenue and elevated costs. That’s destroyed profit margins that were once the envy of the industry.
Gross margin, or the percentage of sales remaining after deducting the cost of production, was 15% in the quarter. At its peak, Intel regularly reported gross margin of well above 60%.
In the third quarter, the company had a loss of 46 cents a share, excluding certain items, and revenue of $13.3 billion, down 6%. That quarterly sales total is its lowest for the third quarter in more than a decade but came in ahead of company projections, Gelsinger said.
Analysts had estimated a loss of 3 cents a share and sales of $13 billion. Wall Street is projecting a modest increase in overall sales this year from 2024, still leaving the company more than $20 billion below its peak in 2021.
Gelsinger remains confident that Intel is on the right track in the long run. He said Intel has paid the heavy price of catching up to the industry, and now can focus on its finances.
The chipmaker is reporting earnings for the third time under a new business structure that shows the financial performance of its manufacturing operations. Gelsinger has said the restructuring was a necessary step to make operations more efficient and competitive.
Its so-called foundry unit had sales that slipped 8% from the prior-year quarter to $4.4 billion, in line with estimates. PC chip sales were $7.3 billion, versus an estimate of $7.46 billion. It’s data centre and AI chip unit gained 9% for sales of $3.3 billion, compared with an average estimate of $3.1 billion.
For the next two years, the majority of work done by Intel’s factories will come from orders from its own chip design unit. The financial benefit of outside business will start to show up in 2026, Gelsinger said.
Gelsinger emphasised on the call with investors that Intel is "far from satisfied” with where it is.
