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Intel stock drops on less confident Q1 guidance

Intel projected a nearly $2 billion reduction in its first-quarter sales of chips designed for traditional server and personal computer businesses due to market uncertainties. Following hours of trading, a 10% decline was observed in shares, and if the trend persists, the company’s market value could decrease by about $20 billion on Friday. During the past year, the PHLX Semiconductor Index saw a 53% increase, while Intel’s shares surged by 66%.

Intel’s CEO, Pat Gelsinger, mentioned in an interview that non-core operations, like those of the vehicle chip manufacturer Mobileye, experienced a downturn along with lower demand in the company’s PC and server core industries. Although Gelsinger indicated the company has $2 billion worth of orders for its AI processors and expects strong sales by the end of the year, Intel no longer provides financial forecasts for the entire year.

Intel’s Sales Warning: Estimated $2 Billion Below First Quarter Expectations

“We see improvements in both revenue and income year-over-year and sequentially in every quarter,” said Gelsinger. Based on LSEG data, semiconductor projects adjusted their revenue between $12.2 billion and $13.2 billion for the first quarter, lower than analysts’ estimated average of $14.50 billion. Excluding one-time items, Intel estimated a profit of 13 cents per share for the first quarter, while experts predicted a share value of 33 cents.

Due to substantial expenses, Intel’s total margin fell from over 60% in the previous high to below 30% by the mid-2023. However, the company’s third quarter shows a slight improvement with a 45.8% adjusted total margin. Intel disclosed a 48.8% total margin for the fourth quarter. Analysts have declared 2024 as a “make-or-break” year for Intel, predicting whether the release of its anticipated artificial intelligence PCs and chips will be genuinely profitable.

Market Reaction: $20 Billion Loss and 10% After-Hours Stock Decline

The demand for traditional server chips, Intel’s primary data center offering, decreased due to a shift in investment towards AI data servers led by competitors like NVIDIA and ambitious AI competitor Advanced Micro Devices. Intel’s data center revenue fell by 10% in the fourth quarter.

Analyst Kinngai Chan from Summit Insights claimed Intel has “come late to the game” in data center AI. “We believe this is affecting its first quarter 2024 data center outlook.” While the market for AI-specific chips remains relatively uncompetitive, NVIDIA’s AI chips are often used in conjunction with Intel’s central processing units (CPUs). According to Gelsinger, Intel has now deployed approximately three-quarters of its server CPUs for AI systems. The company expects an increase in sales of traditional servers this year.

CEO Pat Gelsinger’s Clarification: Weather Changes and Chip Demand

Regarding Intel’s server CPUs market, Gelsinger stated in an interview that “we have been through its worst phase.” Mobileye, Intel’s self-driving technology division, announced a revenue decline in the fourth quarter due to an impact on the company’s profits this year from the reduction in orders from customers clearing inventory.

During a late-night conference call on Thursday, Intel announced that it secured a “significant high-performance computing customer” for chip manufacturing and highlighted Intel’s U.S. factory capacity as a preferred basis. Intel did not disclose the client’s name.

Intel’s Prospects for the Future: No Complete Financial Forecast Provided

In terms of market share, Intel is one of the largest providers of PC CPUs. While there were indications that the post-pandemic slump was ending, its discouraging outlook dashed hopes for improvement in the PC industry. Revenue in the client segment, which includes Intel’s PC business, increased by 33%, reaching $8.8 billion during the quarter. The company’s CEO stated that Intel plans to deploy 40 million PCs with AI this year. According to research firm Counterpoint’s data, PC shipments continued to decline year-over-year in the eighth consecutive quarter during the fourth quarter.

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