(Bloomberg) — Intel Corp., the biggest maker of personal computer processors, tumbled in late trading after releasing a weak outlook for the current period, indicating it is still struggling to return to the chip industry’s top tier.
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Second-quarter sales will be about $13 billion, the company said in a statement Thursday. That compares to an average analyst estimate of $13.6 billion, according to data compiled by Bloomberg. Earnings will be 10 cents per share, minus some items, versus a projection of 24 cents.
The outlook signals that CEO Pat Gelsinger’s push to revitalize Intel will require more time and money. Once the world’s dominant chipmaker, the company lags behind rivals such as Nvidia Corp. and Taiwan Semiconductor Manufacturing Co. in revenue and technological knowledge.
While acknowledging that business has been slower than expected, Chief Financial Officer Dave Zinsner said he expects an improvement later this year. Intel was also unable to meet all of the demand for processors used in new AI-enabled PCs because its packaging facilities were unable to produce enough components.
“The first half of the year was a little calmer than we would have liked,” he said in an interview. “The second half of the year will have very good momentum.”
Intel shares fell as much as 9.4% in extended trading after the report was released. The stock had already fallen 30% this year as of the close, making it the second-worst performer on the Philadelphia Stock Exchange Semiconductor Index.
In the first quarter, the Santa Clara, California-based company had a profit of 18 cents per share, excluding some items, and revenue of $12.7 billion. Analysts estimated earnings of 13 cents per share and sales of $12.7 billion.
The chipmaker is reporting earnings for the first time under a new business structure that shows the financial performance of its manufacturing operations. Gelsinger said the approach is a necessary step toward making operations more efficient and competitive. Intel has also been building a foundry business, which makes components for outside companies on a contract basis.
Read more: Intel suffers worst decline in two months with pessimistic outlook
Earlier this month, the company gave investors a first look at the financial status of its manufacturing network. It wasn’t encouraging. Spending on new factories has caused losses to widen, and Intel doesn’t expect the business to break even for several years.
Intel Foundry, the new division responsible for manufacturing, had sales of US$18.9 billion in 2023, down from US$27.5 billion the previous year. The unit had revenue of US$4.4 billion in the first quarter of 2024.
The foundry business had an operating loss of about $2.5 billion in the first quarter, larger than the losses recorded in the previous quarter and the previous year.
The company’s PC-related chip sales were $7.5 billion, compared to an average estimate of $7.4 billion. Its data center and AI division had revenues of $3 billion, in line with Wall Street projections. Network chips generated nearly $1.4 billion in sales, surpassing an average estimate of $1.3 billion.
The gross margin – or percentage of sales remaining after deducting production costs – was 45.1% in the quarter. This closely watched measure, which reflects the efficiency of Intel’s production operations, will be 43.5% in the current period. Historically, Intel has recorded margins of over 60%.
Intel remains optimistic about the second half of the year because it is launching a new version of the Gaudi chip – its answer to the high-speed AI accelerators sold by Nvidia. That product line will generate about $500 million in sales this year once the latest version goes on sale, Intel projected.
The company is also making progress on cost containment and expects the manufacturing business to break even in the “next few years,” Zinsner said.
Gelsinger said the company has signed another customer for a production technology called 18A, which Intel will launch in 2025. That brings the total to six. The customer, which Intel did not identify, is in the aerospace defense industry and wants production located in the U.S., Gelsinger said.
So far, the chipmaker has only been able to name one company that has signed up to use 18A: Microsoft Corp. It plans to rely on Intel to produce certain types of in-house chip designs that the software maker is working on.
(Updates with comments on foundry deals, AI chips in penultimate paragraph.)
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