Intel stock drops nearly 10% after earnings miss, execs predict quarterly loss as data-center market shrinks

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Intel Corp. shares dropped more than 9% in the extended session Thursday after the chip maker reported a big miss for the fourth quarter, forecast a loss for the first quarter, said the data-center market was contracting and that inventory digestion will gnaw at margins.

Intel INTC, +1.31% executives forecast an adjusted loss of 15 cents a share on revenue of about $10.5 billion to $11.5 billion and adjusted gross margins of about 39% for the current quarter. Analysts surveyed by FactSet had estimated adjusted first-quarter earnings of 25 cents a share on revenue of $13.93 billion.

Chief Executive Pat Gelsinger told analysts on a conference call he would not provide a 2023 forecast. Gelsinger restricted the outlook to the current quarter, citing macro uncertainties, a digestion of PC inventory that was “difficult” to forecast and a contracting data-center market. In the fourth quarter, AI group sales dropped 33% to $4.3 billion, while the Street expected revenue of $4.08 billion.

“We expect Q1 server consumption [total addressable market] to decline both sequentially and year-over-year at an accelerated rate, with first-half 2023 server consumption TAM down year-on-year before returning to growth in the second half,” Gelsinger said.

Chief Financial Officer David Zinsner told analysts that the company will institute an accounting change in the first quarter, where Intel will extend the useful life of their machinery to eight years from a current five years. Gelsinger said that Intel was going to “squeeze” its effective capacity.

While Zinsner would not give a full-year outlook, he did say that continued inventory digestion should be weighted to the first half of the year.

Pressed on how Intel could get back to the 51% to 53% margins range he promised a year ago, Zinsner said a “significant inventory burn” on PC inventory would hit gross margins by 400 basis points in the first quarter. Gross margins for the fourth quarter dropped to 43.8% from 55.8% a year ago, and from 45.9% in the third quarter.

Intel reported a fourth-quarter loss of $664 million, or 16 cents a share, versus net income of $4.62 billion, or $1.13 a share, in the year-ago period. After adjusting for restructuring charges and other items, Intel reported earnings of 10 cents a share, compared with $1.13 a share from a year ago.

Revenue declined to $14.04 billion from $20.52 billion in the year-ago quarter, for a 10th straight quarter of year-over-year declines.

Analysts surveyed by FactSet estimated earnings of 21 cents a share on revenue of $14.49 billion, based on Intel’s forecast of 20 cents a share on about $14 billion to $15 billion.

Intel shares fell as much as 9.8% in after-hours trading during the call with analysts, after closing the regular session up 1.3% at $30.09. Other chip stocks, the one’s most affected by a data-center market contraction, also declined, including top rival Advanced Micro Devices Inc. AMD, +0.33%, which saw shares drop more than 3% in after-hours trading, and Nvidia Corp. NVDA, +2.48%, which declined 2%.

Breaking down divisions: Client-computing sales fell 36% to $6.6 billion from a year ago; “network and edge” sales slipped 1% to $2.1 billion; and foundry services revenue rose 30% to $319 million.

Analysts surveyed by FactSet expected revenue from client computing to come in at $7.36 billion; “network and edge” revenue of $2.23 billion; and foundry services revenue of $199.1 million.

Over the past 12 months, Intel stock has fallen 43%. Over the same period, the Dow Jones Industrial Average  DJIA, +0.61%  — which counts Intel as a component — has slipped 1%, the PHLX Semiconductor Index  SOX, +1.63%  has dropped 13%, the S&P 500 index  SPX, +1.10%  has declined 7%, and the tech-heavy Nasdaq Composite Index  COMP, +6.59%  has dropped 15%.

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