Intel Corp.’s stock fell more than 8% in extended trading today after the company missed Wall Street’s earnings and revenue targets by a wide margin and slashed its outlook for the rest of the year, amid a slowing market and execution troubles.

The chipmaker reported second quarter earnings before certain costs such as stock compensation of 29 cents per share, with revenue of $15.32 billion, down 22% from the same period last year. Wall Street had been looking for much bigger earnings of 70 cents per share on sales of $17.92 billion.

Intel ended the quarter with a $454 million net loss, compared with net income of $5 billion in the same period one year ago. Its revenue missed consensus by 14%, which was its largest top-line disappointment since 1999. Meanwhile, Intel said its gross margin narrowed to 36.5%, down from 50.4% in the previous quarter.

Intel Chief Executive Pat Gelsinger (pictured) conceded that the quarterly results were “below standards”, and that it “must do better”.

“The sudden and rapid decline in economic activity was the largest driver, but the shortfall also reflects our own execution issues,” Gelsinger said. “We are being responsive to changing business conditions, working closely with our customers while remaining laser-focused on our strategy and long-term opportunities. We are embracing this challenging environment to accelerate our transformation.”

Intel might be striving to improve but it could take a while before the company delivers any tangible results. With respect to guidance, Intel fell short again when it called for third quarter earnings of 35 cents per share on revenue of between $15 billion and $16 billion. Wall Street is targeting earnings of 86 cents per share on sales of $18.62 billion, so the guidance suggests analysts will almost certainly be in for more disappointment.

The poor outlook forced Intel to slash its guidance for fiscal 2023 too. The company, which had earlier forecast full year earnings of $3.60 on total sales of $76 billion, revised this downward to earnings of just $2.30 per share and revenue of $65 billion to $68 billion.

Wall Street, in contrast, had been looking for full year earnings of $3.42 per share on sales of $74.34 billion.

Intel Chief Financial Officer David Zinsner told CNBC that many small and medium-sized businesses have reduced spending on computers and related gear. On the other hand, larger enterprise spending was holding up, he said. The company’s revised forecast takes into account that many customers are likely to put off personal computer refresh cycles in light of economic conditions, the CFO explained.

“We do think we’re on the bottom,” Zinsner said, while stating that price increases and a seasonal improvement in the fourth quarter should help bring Intel’s gross margin back above 50%. “The market turbulence and update outlook is disappointing,” he added. “However, we believe our turnaround is clearly taking shape and expect Q2 and Q3 to be the financial bottom for the company.”

Intel’s client computing business, which accounts for PC chips, pulled in $7.7 billion in revenue over the quarter, down 25% from one year ago and some way short of Wall Street’s $8.89 billion forecast. The lower revenue was not such a surprise though, as industry research firm Gartner Inc. recently reported that global PC shipments had fallen by 13% in the quarter. Intel’s presentation to investors referenced “softening demand” for PCs in the consumer and education markets, and revealed that higher operating costs also chipped away at profits.

As for the Datacenter and AI business, which includes server chips, accelerators, memory chips and field-programmable gate arrays, it generated $4.6 billion in revenue, down 16% from a year earlier. That too, was well short of Wall Street’s consensus estimate of $6.19 billion. The company said “competitive pressure” hurt the unit’s revenue during the quarter. Intel hasn’t been helped by delays on the innovation side either. Zinsner said today that the company’s next-generation server chips, codenamed Sapphire Rapids, will go into production later than expected.

More encouraging results came from Intel’s smaller Network and Edge business, which accounts for its networking products. The unit did $2.3 billion in sales, up 11% from a year ago and just beating Wall Street’s forecast of $2.27 billion.

“Intel had a bad quarter and offered a less-than-enthusiastic forecast,” said Patrick Moorhead of Moor Insights & Strategy. “Part of it was self-inflected, but most of the issues were market-related. I think the company has the right strategy and the right people but will need a few more years to see things through.”

Intel has been making progress in some areas, at least. For instance, it launched its new Habana Gaudi2 chips for artificial intelligence training during the quarter, a move that should help it to compete with Nvidia Corp.’s A100 graphics processing units. In addition, the company has been pushing U.S. Congress to move forward with legislation that will provide billions of dollars worth of grants in support of the domestic semiconductor manufacturing industry. Intel had delayed starting work on a planned semiconductor fab in Ohio in order to pressure lawmakers to get moving, and it seems to have had the intended effect. The Chips and Science Act was finally passed by the house this week, and is now set to arrive on President Joe Biden’s desk.

“This is historic legislation,” Gelsinger said on a conference call with analysts.

Zinsner said on the call that Intel will slow its hiring due to the current economic conditions. He also reiterated the company’s plans to spin out its Mobileye autonomous driving unit through an initial public offering later in the year.

Photo: SiliconANGLE

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