Intel faces earnings squeeze as turnaround efforts begin

According to The figures published Thursday evening.

Despite a slight increase in its forecast for the remainder of this year, shares of the U.S. chipmaker fell 3% in aftermarket as Wall Street digested the company’s slippery profit margins and escalating spending. in capital as it paved the way for a turnaround attempt.

The results are the first under new CEO Pat Gelsinger, who presented an ambitious plan last month to put Intel at the forefront of chip manufacturing, while defining a new strategy to become a chip “foundry” doing fabrications for other companies.

On Thursday, he claimed significant early traction in the foundry industry, telling analysts that more than 50 potential customers had already expressed interest.

However, Intel predicted its gross profit margin to drop below 55% this year, from historically around 60% levels, and said capital spending is expected to reach $ 20 billion, from $ 14.3 billion. dollars from last year.

Margins have been hit this year by greater reliance on low-margin PCs, as well as ramp-up costs of 10nm process technology coinciding with the start-up expense of delayed 7nm technology. of the society. Lower margins in the first quarter, which saw the pro forma gross profit margin fall by more than 6 percentage points, reflects a shift towards less profitable products as well as greater competition in the data center market, according to Patrick. Moorhead, an American chip analyst.

Resilient first quarter sales came despite supply constraints that have weighed on the entire industry in recent months, as well as the forays that rival AMD may have made in the processor market following Intel’s slippages.

Intel said revenue for its PC division rose 8% to $ 10.6 billion, while data center customer revenue fell 20% to $ 5.6 billion.

The huge demand for personal computers caused by the closure of offices and schools during the pandemic meant that 2021 “was shaping up to be the biggest PC market ever,” with unit sales in some markets rising by 30%. % in the first quarter, Mr. Gelsinger mentioned. Global PC sales peaked at over 350 million in 2012 before slipping below 260 million in 2018, only to climb back above 300 million last year.

Some analysts have expressed suspicion of declining data center sales, which have become the main engine of growth for the company in recent years. Intel executives said the drop reflected a short-term hiatus in spending by large cloud companies as they “digest” recent chip purchases, and said they expected the he company returned to growth throughout the year.

Excluding $ 1.1 billion in revenue from its Nand memory business, which is currently being sold to SK Hynix, Intel reported pro forma revenue of $ 18.6 billion for its most recent quarter, unchanged from a year earlier.

Pro forma profit, before the effect of a $ 2.2 billion charge stemming primarily from a recent jury award against the company in a patent lawsuit, was $ 1.39 per share.

Wall Street expected pro forma revenue of $ 17.8 billion and earnings of $ 1.15 per share. Based on formal accounting principles, Intel’s net profit fell 41 percent to $ 3.4 billion, with earnings per share down 37 percent to 82 cents.

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