Intel's earnings forecast fails to clear low bar, and the stock's drop continues

By Emily Bary and Claudia Assis

Intel's stock losses add to chip maker's rough year so far

Intel Corp. shares dropped about 8% in the extended session Thursday, adding to their rough start to the year as the chip company reported revenue slightly below Wall Street's expectations.

The company forecast second-quarter 2024 revenue between $12.5 billion and $13.5 billion, and said it is expecting second-quarter adjusted earnings of 10 cents a share. Analysts tracked by FactSet had been modeling $13.6 billion and 25 cents, respectively.

The outlook from Intel (INTC) is "much worse than expected, suggesting a bottom has not be made just yet," Mizuho desk-based analyst Jordan Klein wrote. "It will overshadow all the CEO bullish talk on new products to come."

Chief Financial Officer David Zinsner said on the earnings call that looking beyond second-quarter guidance, Intel expects growth across all its segments, led in part by improving demand for general-purpose servers and benefits from artificial-intelligence personal computers.

The company also expects "a meaningful Gaudi ramp in the second half," he said, referring to the company's AI accelerator.

Zinsner added on the earnings call that this is a "heavy year for start-up costs for us," something that Intel expects to impact the second quarter more so than the first. "That puts a little added pressure on gross margins," he noted.

Intel expects a 40.2% gross margin for the second quarter, compared with 41.0% in the first quarter. On an adjusted basis, it anticipates a 43.5% gross margin, versus 45.1% in the first quarter.

Revenue for the latest quarter rose 9% to $12.7 billion, whereas analysts were modeling $12.8 billion.

Intel reported a first-quarter net loss of $437 million, or 9 cents a share, narrower than a net loss of $2.8 billion, 66 cents a share, in the year-ago period.

On an adjusted basis, Intel earned 18 cents a share, while analysts tracked by FactSet had been looking for 14 cents a share.

"While first-half demand signals have been a bit weaker, Q1 played out largely in line with our expectations," Zinsner said.

The company recorded $7.5 billion in client computing revenue, which was up 31% from a year before and met Wall Street's expectations for the segment, which includes desktop and notebook products.

Data-center and artificial-intelligence revenue rose 5% to $3 billion, whereas the FactSet consensus was for $3.3 billion.

Intel's foundry business generated $4.4 billion in revenue, down 10% relative to the year before. Intel recently decided to break out its foundry financials, and this is the first official release under the new reporting scheme.

Shares of Intel have missed out on the sector's rise so far this year - in a big way. Some of the PHLX Semiconductor Index's SOX gains have recently evaporated, but that chip-sector benchmark is still up 10% thus far in 2024 and outpacing the S&P 500's SPX 6% gain. Intel's stock, by contrast, is off 30% on a year-to-date basis and one of the S&P 500's steepest decliners.

Intel's "massive" stock losses this year and deteriorating sentiment "set a low enough bar" into earnings, Klein said, but Intel "somehow managed to disappoint."

See also: Intel's stock stems its bleeding upon launch of new AI chip

-Emily Bary -Claudia Assis

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04-25-24 2019ET

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